Sunday, March 1, 2015

National Income - Part II (GDP, GNP, NNP, NI)

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1. Gross Domestic Product (GDP)
GDP is generally calculated in territorial (note Domesticbasis, meaning all (note Grossfinished products within the border of a country is considered.
Therefore, all domestic products including international companies operating in India and excluding Indian workers/companies operating in foreign countries, accounts for GDP of India.

GDP = domestic products + foreign income in India - Indian income in foreign countries

2. Gross National Product (GNP)
GNP is generally calculated in national basis, meaning finished products of a nation is considered, whether it is within the country or abroad.
Therefore, to determine GNP, deduct foreign income in India and add Indian income in foreign countries with GDP.

GNP = GDP - foreign income in India + Indian income in foreign countries

3. Net National Income (NNP)
Value of a product gets depreciated after consumption due to wear and tear. Depreciation does not become part of anybody's income.
Therefore, to determine NNP, deduct the depreciation from the GNP.

NNP = GNP - depreciation

4. National Income (NI)
Note that all of the above variables are evaluated at market prices. It includes indirect taxes (imposed on goods and services), which need to pay to government, making the market price high. Also, there may be government subsidies on the prices of some commodities (like, LPG, etc.), making the market price low.
Therefore, to determine NI, deduct the indirect taxes from NNP and add the subsidies with the NNP.

NI = NNP - indirect taxes + subsidies

to be continued.. 
(GDP of India with the new base year)

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