Gross Domestic Product (GDP)
- Gross Domestic Product (GDP) measures the aggregate production of final goods and services taking place within the domestic economy during a year.
- Key Terms:
- GDP at Factor Cost (GDPFC)
- GDP at Factor Cost (GDPFC) refers to the aggregate value of income earned from the factors of production i.e. Land, Labor, Capital, and Entrepreneurship.
- GDP at Factor Cost (GDPFC) = GDP at Market Price (GDPMP) – Indirect Taxes + Subsidies
- GDP at Market Price (GDPMP)
- GDP at Market Price (GDPMP) is the market value of all final goods and services produced within a domestic territory of a country during one financial year.
- GDP at Market Price (GDPMP) includes indirect taxes but excludes subsidies.
- GDP at Factor Cost (GDPFC)
Gross National Product (GNP)
- Gross national product (GNP) is an estimate of the total value of all the final products and services produced in a given period by the production owned by a country’s citizens.
- GNP = GDP + Net Factor Income from Abroad (NFIA)
Real GDP Vs Nominal GDP
- Real GDP – Real GDP refers to the total value of all goods and services produced by an economy in a given year, expressed in constant prices or base year’s prices.
- Nominal GDP – Nominal GDP refers to the total value of all goods and services produced by an economy in a given year, expressed in current market prices.
GDP Deflator
- The GDP Deflator refers to the ratio of Nominal GDP to Real GDP.
- GDP Deflator = Nominal GDP/Real GDP
- The GDP Deflator is an economic measure of inflation.
Gross Value Added (GVA)
- Gross value added (GVA) is defined as the value of output less the value of intermediate consumption. It represents the contribution of labour and capital to the production process.
- GVA = GDP – Indirect Taxes + Subsidies
Net National Income (NNI)
- Net National Income (NNI) refers to Gross National Income minus the Depreciation of fixed capital assets.
- Net Domestic Product (NDP) = GDP – Depreciation.
- Net National Product = GNP – Depreciation.
Methods of Computing National Income (NI)
- Income Method:
- NI is obtained by summing up the incomes of all individuals in an economy.
- National Income (NI) = Employee compensation + Corporate profits + Proprietors’ Income + Rental income + Net Interest
- Product or Value Added Method:
- This is also called “Output Method”.
- NI is computed by adding the values of output produced or services rendered by the different sectors of the economy during the year.
- Expenditure Method:
- It is also called ‘Total Outlay Method’.
- This method assumes that the income earned by an individual is either spent on consumer goods/services or saved and invested.
- National Income (NI) = Personal Consumption Expenditure (C) + Investments (I) + Government Expenditure (G) + Exports (X) – Imports (I)