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GROSS DOMESTIC PRODUCT

By definition ,

It measures the aggregate production of final goods and services produced within the domestic economy during a year.
 
for example

Person A is born in India and he completed his studies and selected for an ABC Company which produces pencil and it is situated in Canada . After Couple of months he moved to Canada and joins ABC Company . Now he is contributing his knowledge and power to the company to produce pencil which in turn helps economic growth of the country.
By Above Reference, may be person born in India but he is working in Canada so he is contributing to Canada GDP  not to Indian GDP
 
So it must be clear from the above explanations i.e,  It measures the total value of final goods and services produced within an territory or boundary during a year .

FORMULA,
GDP = C + I + G + ( X – M )    where ,
C = Final Consumption ,
I = Investment ,
G = Government Expenditures ,
X = Exports ,
M = Imports 

NATIONAL DOMESTIC PRODUCT

NDP  is calculated just by subtracting the depreciation from GDP . It is just used to understand the loss due to depreciation . NDP is not used for comparative analysis of economy since the rate of depreciation is different for different countries .
 
FORMULA,
NDP = GDP – DEPRECIATION
 
 

GROSS NATIONAL PRODUCT

By definition ,

It measures value of all finished goods and services produced in a country in an given year by its citizens or nationals irrespective of location.
ie,  GNP includes income earned by its citizens abroad and excludes the income earned by foreigners within the country.
 
Lets go through the above definition with an example ,
Person A is born in India and he completed his studies and selected for an ABC Company which produces pencil and it is situated in Canada . After Couple of months he moved to Canada and joins ABC Company . Now he is contributing his knowledge and power to the company to produce pencil which in turn helps economic growth of the country.
 
Now with an above example he is contributing to Canada GDP . 
But he is an indian working in Canada so there must be some measure to take into account, the earnings made by Person A in abroad —> To measure this scenario a concept called as GNP is introduced which takes an account of earning made by its nationals abroad .
 

How we Calculate GNP

From Above Example ,
 Person A earnings will be deducted from Canada GDP . As same foreigners working in India ,their salaries will be deducted from Indian GDP which will help an particular country to calculate their Gross National Product.
 
Lets take another Example.
Suppose an chinese mobile Company ABC setup its plant in Malaysia . To Calculate GNP we have to deduct chinese ABC Company earnings from Malaysian GDP .
 
FORMULA ,
GNP = GDP + NET Factor Income from Abroad
 
Net Factor Income from abroad = Factor income earned by the domestic factors of production employed in rest of world – Factor income earned by the factors of production of the rest of world employed in domestic economy
 
 

NET NATIONAL PRODUCT

By definition ,

It is the total monetary value of all goods and Services Produced by an Country’s Citizen abroad or domestically in an given year minus depreciation defines NNP.
 
FORMULA ,
NNP = GNP – DEPRECIATION
 
DEPRECIATION define as ,
 Wear and Tear or  depletion which capital stock undergoes over a period of time define as Depreciation
 
To Contribute for GNP in an given year , a country uses some fixed assets and capital goods like Machinery , Equipments etc . These Capital goods depreciate year by year during production process .
So to get NNP we Deduct Depreciation from GNP . In Simple Terms it define as Net National Product ( NNP) at market prices .
 

NATIONAL INCOME

The Total amount of money earned within a country defined as National Income .
 
To Contribute for GNP in an given year , a country uses some fixed assets and capital goods like Machinery , Equipments etc . These Capital goods depreciate year by year during production process .
So to get NNP we Deduct Depreciation from GNP . In Simple Terms it define as Net National Product ( NNP) at market prices .
 
Now in Above Scenario  NNP at market prices it includes INDIRECT TAXES ( Which accrue to government) and SUBSIDIES ( which is granted by government)
 
Indirect taxes are imposed on goods and services because of which commodity price increases and this tax accrue to the government . So, to calculate NNP at factor cost we must deduct from NNP at market price
 
Subsidies are granted by government on prices of some commodities to lower the price of commodity in order to be benefited by people . So, to calculate NNP at factor cost we must add  NNP at market price
FORMULA ,
NNP at factor cost ( National Income) = NNP at market prices – Indirect taxes + Subsidies
 

Importance of National Income 

  • It helps to measure the size of the economy .
  • It helps to trace the trend of economic growth as compared to previous year growth .
  • It helps to make projections for future development and its statistics assists in budget and economic policy formulation to increase growth rate and fix targets for different sectors on basis of earlier performance
  • It helps business to forecast future demands of the products and also help government to formulate sustainable development plans.
  • It helps to compare living standard of people .





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