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Question
Fill in the blank with appropriate alternatives given below
GDP (FC) = GDP (MP) – __________
Options
factor cost
indirect taxes
depreciation
subsidy
Solution
GDPFC = GDPMP − Net Indirect Taxes
Explanation:
Market price (MP) includes indirect taxes levied by the government on different goods and services and subsidies. These should be deducted from it to get the actual factor price. In other words,when the Gross Domestic Product (GDP) is expressed in terms of factor cost, the impact of subsidies and indirect taxes is not taken into consideration. Thus,
GDPFC = GDPMP− Net Indirect Taxes
GDPFC = GDPMP− (Indirect Taxes − Subsidies)
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