Adjusting GDP: Market Prices to Basic Prices

Steps:

• Recall GDP at market prices includes indirect taxes on products and excludes subsidies.
• Define GDP at basic prices as amounts received by producers, excluding product taxes but including subsidies.
• Subtract product taxes (expenditure taxes) from market prices to remove government levies.
• Add subsidies to market prices to include producer support.

Why D is correct:

• Per national accounts formula, GDP at basic prices = GDP at market prices - taxes on products + subsidies on products.

Why the others are wrong:

• A: Capital consumption adjusts for depreciation, not price basis; net property income from abroad affects GNP, not basic prices.
• B: Net property taxes from abroad irrelevant to domestic price adjustment; capital consumption unrelated.
• C: Net property taxes are production taxes, not product taxes; capital consumption not involved in price conversion.

Final answer: D