NCERT Class 12 Economics — Chapter 4: National Income Accounting

The correct option is National Disposable Income includes current transfers from abroad.

Explanation

In National Income Accounting, aggregates are distinguished based on whether they include depreciation, net indirect taxes, or transfer payments. The distinction between Net National Product at Market Prices (NNP_MP) and National Disposable Income (NDI) lies in the treatment of transfer payments from abroad.

Detailed Analysis:

• Net National Product at Market Prices (NNP_MP): This aggregate measures the income earned by the normal residents of a country. It includes Net Factor Income from Abroad (NFIA) but excludes unilateral transfers (gifts, grants, aid).
• National Disposable Income (NDI): This represents the total income available to the country for final consumption and saving. It is derived by adding Net Current Transfers from the Rest of the World to NNP_MP.

Formulaic Relationship:
National Disposable Income = NNP_MP + Net Current Transfers from the Rest of the World

Therefore, the specific difference is that NDI includes current transfers (unrequited transfers like aid or remittances where no service is rendered in return), whereas NNP_MP does not.

Analysis of Incorrect Options:

• National Disposable Income excludes indirect taxes and subsidies is incorrect: Both NNP_MP and NDI are valued at "Market Prices," meaning both include Net Indirect Taxes (Indirect Taxes minus Subsidies).
• Net National Product at market prices includes depreciation is incorrect: The term "Net" in Net National Product signifies that depreciation (consumption of fixed capital) has already been subtracted. "Gross" National Product would include depreciation.
• Both aggregates represent the same income concept is incorrect: They are distinct concepts; one represents earned income (plus taxes), while the other represents total disposable resources including transfers.

Key Takeaway: Net National Product at Market Prices (NNP_MP) reflects factor income earned by residents, whereas National Disposable Income adds "Net Current Transfers from the Rest of the World" to reflect the total purchasing power available to the nation.