*DAY #06 01.04.2020*
*TOPIC – N.I. RELATED AGGREGATES*
*GDP – GNP – NDP – NNP – MARKET PRICE – FACTOR COST*
*NATIONAL
INCOME*
*The sum total
of all the factor incomes, earned by the normal residents of a country.
*Includes only
factor Incomes.
*It includes income earned by Public Sector.
*Person is important
*DOMESTIC
INCOME*
*It is
territorial concept as it includes the value of final goods and services
produced within the domestic territory of a country.
*It considers
all producers within the domestic territory of the country.
*It does not
include NFYA.
*Place is important.
NATIONAL INCOME RELATED
AGGREGATES
There are 8 National Income related
aggregates –
1. Gross Domestic Product at market
price (GDP mp)
2. Gross National Product at market
price (GNP mp)
3. Net Domestic Product at market price
(NDP mp)
4. Net National Product at market price
(NNP mp)
5. Gross Domestic Product at factor cost
(GDP fc)
6. Gross National Product at Factor cost
(GNP fc)
7. Net Domestic Product at factor cost
(NDP fc)
8. Net National Product at factor cost
(NNP fc)
1.
Gross Domestic Product at Market Price (GDPmp): Gross
Domestic Product (GDP) is the total market value of all final goods and
services currently produced within the domestic territory of a country in a
year. Four things must be noted regarding this definition.
First,
it measures the market value of annual output of goods and services currently
produced. This implies that GDP is a monetary measure.
Secondly, for calculating GDP
accurately, all goods and services produced in any given year must be counted
only once so as to avoid double counting. So, GDP should include the value of
only final goods and services and ignores the transactions involving
intermediate goods.
Thirdly, GDP includes only currently
produced goods and services in a year. Market transactions involving goods
produced in the previous periods such as old houses, old cars, factories built
earlier are not included in GDP of the current year.
Lastly, GDP refers to the value of
goods and services produced within the domestic territory of a country by
nationals or non-nationals.
2.
Gross National Product at Market Price (GNPmp): Gross
National Product is the total market value of all final goods and services
produced in a year. GNP includes net factor income from abroad whereas GDP does
not. Therefore, Net factor income from abroad = factor income received by
Indian nationals from abroad – factor income paid to foreign nationals working
in India.
GNPmp
= GDPmp + Net factor income from abroad.
3. Net Domestic Product at
Market Price (NDPmp) – Net Domestic Product at market price refers
to net market value of all the final goods and services produced within the
domestic territory of a country during a period of one year.
NDPmp
= GDPmp - Depreciation.
NDPmp
= GNPmp – Depreciation + Net factor
Income from Abroad.
4. Net
National Product at Market Price (NNPmp): NNP
is the market value of all final goods and services after providing for
depreciation. That is, when charges for depreciation are deducted from the GNPmp
we get NNPmp at market price. Therefore’
NNPmp
= GDPmp – Depreciation + Net Factor Income from Abroad.
NNPmp
= GNPmp – Depreciation
NNPmp
= NDPmp + net Factor Income from Abroad.
5. Gross Domestic Product at
Factor Cost (GDPfc) - GDP at factor cost is gross domestic
product at market price less net indirect taxes. GDP at factor cost measures
money value of output produced within the domestic boundaries of a country in a
year, as received by the factors of production.
GDPfc = GDPmp - Net indirect
taxes or
GDPfc = GNPmp – Net Indirect Taxes - NFIA
GDPfc = NDPmp + Depreciation
- Net indirect taxes
GDPfc = NNPmp + Depreciation - NFIA – Net
Indirect Taxes
6. Gross National Product at
Factor Cost (GNPfc) - GNP at factor cost is gross domestic
product at market prices less net indirect taxes plus NFIA. GNP at factor cost measures
money value output received by the factors of production belonging to a country
in a year.
GNPfc = GDPmp + Net factor
Income from Abroad – Net Indirect Taxes
GNPfc = GNPmp – Net Indirect
Taxes
GNPfc = NDPmp + Depreciation
+ Net Factor Income from Abroad - Net indirect taxes
GNPfc = NNPmp + Depreciation – Net Indirect
Taxes
7. Net Domestic Product at Factor
Cost (NDP fc) - Net
Domestic Product at factor cost refers to net money value of all the goods and
services produced within the domestic territory of a country during a period of
one year.
NDPfc = GDPmp – Depreciation
– Net Indirect Taxes
NDPfc = GNPmp – Depreciation
- Net factor Income from Abroad - Net Indirect Taxes
NDPfc = NDPmp - Net indirect
taxes
NDPfc = NNPmp - Net factor
Income from Abroad – Net Indirect Taxes
NDPfc = GDPfc – Depreciation
NDPfc = GNPfc – Depreciation
– Net Factor Income from Abroad
8. Net
National Product at Factor Cost (NNPfc - National Income): NNP
at factor cost or National Income is the sum of wages, rent, interest and
profits paid to factors for their contribution to the production of goods and
services in a year. It may be noted that:
NNPfc = GDPmp – Depreciation
+ Net Factor Income from Abroad – Net
Indirect Taxes
NNPfc = GNPmp – Depreciation
- Net Indirect Taxes
NNPfc = NDPmp + Net Factor
Income from Abroad - Net indirect taxes
NNPfc = NNPmp – Net Indirect
Taxes
NNPfc = GDPfc – Depreciation+
Net Factor Income From Abroad
NNPfc = GNPfc – Depreciation
NNPfc = NDPfc + Net Factor
Income from Abroad.
IMPLICATIONS OF THE CONCEPTS OF
ECONOMIC TERRITORY AND RESIDENT
National income and related aggregates:
are basically measures of production activity. There are two categories of
national income aggregates: domestic income and national income. or domestic
product and national product.
DOMESTIC PRODUCT Domestic product Includes production
activity of the production units located in the economic territory Irrespective
of whether tamed out by the residents or non residents.
Gross Domestic Product (GDP). Net
Domestic Product (NDP) are some examples.
Illustrative example: How Will you treat
the following while estimating domestic product (or domestic factor income) of
India?
(i) Rent received by an Indian
resident From his property in Singapore
(ii) Salaries received by Indian
residents working in Russian embassy in India
(iii) Profits earned by a foreign
company or a foreign bank in India
(iv) Salaries paid to Koreans working
in Indian embassy in Korea
(v) Compensation of employees to the
resident of Japan working in Indian embassy in Japan
(vi) Profits med by a branch of Slate
Bank of India in Japan
Answer:
(I) No, it will not be included in domestic
factor income of India because this income is earned outside domestic territory
(economic territory) of India. It is factor income hum abroad.
(ii) No, it will not be included in domestic
factor income of India because Russian embassy in India is not a part of
domestic territory of India. So, this income is not earned within the dam
territory of India. It is factor income from abroad
(iii) Yes, it will be included in domestic
factor income of India because the foreign company or the foreign bank is
located within the domestic territory of India. So, it is an income earned within
the domestic territory of India
(iv) Yes, it will be included in domestic
factor income of India because this income is earned within the domestic territory
of India. Indian embassy in Korea is a part of the domestic territory of India.
(v) Yes, it will be Included as It is
part at factor income earned in domestic territory of India, though earned by
non-resident.
(vi) No, as profits are not earned within
the domestic territory of India. It is factor income from abroad
NATIONAL PRODUCT - National product Includes production
activities of residents irrespective of whether performed within the economic territory
or outside it.
Gross National Product (GNP). Net
National Product (NNP) are some examples.
Illustrative example: Will the
following be included in Gross National Product (GNP)? Give reasons.
(i) Profits earned by a foreign
company or a foreign bank in India
(ii) Salary paid to Americans working
in Indian Embassy in America
(iii) Salaries received by Indian
residents working in Russian Embassy in India
(iv) Dividend received by an Indian
from his investment in share of a foreign company
Answers: (I) No, because it is a
facial income earned by a non-resident (a foreign company or a foreign bank)
from its contribution to production inside the domestic territory of India i.e.,
factor income paid to abroad.
(ii) No. because this Factor income
is paid no non-residents i.e., factor income to abroad.
(iii) Yes, because it is a factor
income earned by Indian residents outside the domestic territory of India i.e.,
factor income from abroad.
(iv) Yes, because it is a factor
income earned by a resident From outside the domestic territory of India. i.e.,
factor income from abroad.
Video #10
Basic concepts of National Income - relation between various Aggregates
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Regards
Dr. Asad Ahmad
KV IIM, Lucknow
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