With reference to the net earning from foreign transactions, consider the following statements: 1. Net earnings from foreign transactions are always zero for an open economy. 2. It is negative if the value of imports exceeds the value of exports. 3. It is added to the Gross Domestic Product to arrive at the Gross National Product. Which of the statements given above is/are correct?

The correct option is 2 and 3 only. Explanation In macroeconomics, an open economy interacts with the rest of the world through trade (exports and imports) and financial transactions. The net outcome of these interactions affects the calculation of National Income aggregates like Gross Domestic Product (GDP) and Gross National Product (GNP). Statement-wise Analysis: - Statement 1 is Incorrect. In an open economy, there are active economic linkages with the rest of the world. The net earnings from foreign transactions (whether trade balance or factor income) can be positive, negative, or zero depending on the volume of exports versus imports and factor receipts versus payments. It is in a closed economy that net earnings from foreign transactions are zero, as no such transactions exist. - Statement 2 is Correct. Broadly, net earnings from foreign transactions reflect the balance between inflows and outflows. If the value of imports (expenditure incurred abroad) exceeds the value of exports (revenue earned from abroad), the net balance is negative. This represents a deficit in the context of trade or net exports. - Statement 3 is Correct. This statement refers to the concept of Net Factor Income from Abroad (NFIA). The relationship between domestic and national product is defined as: Gross National Product (GNP) = Gross Domestic Product (GDP) + Net Factor Income from Abroad. Thus, net earnings (specifically factor income) are added to GDP to derive GNP. Key Takeaway: GNP differs from GDP by the inclusion of Net Factor Income from Abroad (NFIA). If the economy earns less from abroad than it pays out, this value is negative, making GNP lower than GDP.

NCERT Class 11 Economics — Chapter 7: Employment: Growth, Informalisation and Other Issues

mcqeasy

With reference to the net earning from foreign transactions, consider the following statements:

Net earnings from foreign transactions are always zero for an open economy.
It is negative if the value of imports exceeds the value of exports.
It is added to the Gross Domestic Product to arrive at the Gross National Product.

Which of the statements given above is/are correct?

Official previous-year question

Verified 1 Aug 2026.

Options

A2 and 3 only
B2 only
C1, 2 and 3
D1 and 2 only

Did you get this right?

Solution

The correct option is 2 and 3 only.

Explanation

In macroeconomics, an open economy interacts with the rest of the world through trade (exports and imports) and financial transactions. The net outcome of these interactions affects the calculation of National Income aggregates like Gross Domestic Product (GDP) and Gross National Product (GNP).

Statement-wise Analysis:

Statement 1 is Incorrect.
In an open economy, there are active economic linkages with the rest of the world. The net earnings from foreign transactions (whether trade balance or factor income) can be positive, negative, or zero depending on the volume of exports versus imports and factor receipts versus payments. It is in a closed economy that net earnings from foreign transactions are zero, as no such transactions exist.
Statement 2 is Correct.
Broadly, net earnings from foreign transactions reflect the balance between inflows and outflows. If the value of imports (expenditure incurred abroad) exceeds the value of exports (revenue earned from abroad), the net balance is negative. This represents a deficit in the context of trade or net exports.
Statement 3 is Correct.
This statement refers to the concept of Net Factor Income from Abroad (NFIA). The relationship between domestic and national product is defined as:
Gross National Product (GNP) = Gross Domestic Product (GDP) + Net Factor Income from Abroad.
Thus, net earnings (specifically factor income) are added to GDP to derive GNP.

Key Takeaway:
GNP differs from GDP by the inclusion of Net Factor Income from Abroad (NFIA). If the economy earns less from abroad than it pays out, this value is negative, making GNP lower than GDP.

Your note

More from Chapter 7: Employment: Growth, Informalisation and Other Issues

With reference to the definition of ‘workers’ in the Indian economy, consider the following statements: 1. Self-employed individuals are considered workers in the Indian economy. 2. A person temporarily abstaining from work due to illness is excluded from the worker category. 3. Those who help main workers in economic activities without receiving direct payment are included in the category of workers. Which of the statements given above is/are correct?

medium

Consider the following statements regarding the ‘Worker-Population Ratio’ in India: 1. It is defined as the total population divided by the number of workers. 2. The worker-population ratio is generally higher in rural areas compared to urban areas. 3. A higher ratio indicates that a greater proportion of the population is actively contributing to the production of goods and services. Which of the statements given above is/are correct?

medium

With reference to the concepts of Gross Domestic Product (GDP) and Gross National Product (GNP), consider the following statements: 1. GNP is calculated by deducting the value of exports from the GDP. 2. GDP is the total money value of all final goods and services produced in a country in a year. 3. The net earning from foreign transactions is always positive for a developing country like India. Which of the statements given above is/are correct?

easy

Consider the following statements regarding the participation of women in the workforce in India: 1. Women constitute the majority of the workforce in rural India. 2. The worker-population ratio for women is significantly higher in urban areas than in rural areas. 3. Many household activities performed by women are not recognised as productive work, leading to an underestimation of women workers. Which of the statements given above is/are correct?

medium

The term "Squatters" in the context of the informal sector refers to:

easy

Keep practising Chapter 7: Employment: Growth, Informalisation and Other Issues

Work through every question from this NCERT chapter.

Browse all NCERT Class 11 Economics chapters

The correct option is 2 and 3 only.

Explanation

Statement-wise Analysis:

Statement 1 is Incorrect.
In an open economy, there are active economic linkages with the rest of the world. The net earnings from foreign transactions (whether trade balance or factor income) can be positive, negative, or zero depending on the volume of exports versus imports and factor receipts versus payments. It is in a closed economy that net earnings from foreign transactions are zero, as no such transactions exist.
Statement 2 is Correct.
Broadly, net earnings from foreign transactions reflect the balance between inflows and outflows. If the value of imports (expenditure incurred abroad) exceeds the value of exports (revenue earned from abroad), the net balance is negative. This represents a deficit in the context of trade or net exports.
Statement 3 is Correct.
This statement refers to the concept of Net Factor Income from Abroad (NFIA). The relationship between domestic and national product is defined as:
Gross National Product (GNP) = Gross Domestic Product (GDP) + Net Factor Income from Abroad.
Thus, net earnings (specifically factor income) are added to GDP to derive GNP.