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` It is the sum total of all goods and services
produced in a country, in a particular period of
time.
` Time period neither too short nor too long and
hence optimal time period has been set to 1 year.
` Used synonymous with National Product.
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` Defined as the total market value of all the finalgoods and services produced in a year by thenormal residents of a country.
From the definition ofGNP, we can identify 3concepts
1. FinalG
oods2. Current Year
3. Normal Residents
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Two aspects are to be noted while calculating GNP
GNP measures the market value of the annualoutput.
It is a monetary measurement. Since the market value changesconstantly, the GNP is adjusted for price changes.
All goods and services produced in a given yearmust be counted only once
Most of the goods go through a series of production changesbefore going to the market. Hence the goods may be bought
and sold many times.To avoid this redundant counting, GNP should include themarket value of the final goodsfinal goods only.
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Final Goods Goods that are purchased for final use and
not for resale or further processing.
Intermediate Goods Goods that are purchased for
further processing or for resale.
For example,A car sold to a consumer is a final good; the
components such as tires sold to the car manufacturer
are not; they are intermediate goods used to make the
final good.
Value of the car will include the value of the tires in it and
hence, the inclusion of the value of tires separately will
result in double counting!
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GNP includes the final goods and services forthe current yearcurrent yearonly.
Any items that exist, yet are not produced
during the current year should not beincluded in GNP.
Examples include old houses, cars producedduring the previous year. Instances likeselling of stocks and bonds do not includecurrent production and hence should not beincluded in GNP.
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GNP includes the value of goods and servicescurrently produced by normalresidents of anormalresidents of a
country.country.
The residents in a country may be nationalornon-nationalcompanies.
Non National companies are those owned in
India by non-nationals but work to producegoods and services within India sending
profitsprofits to their own countries.
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` Value of Final Goods and Services produced in a year and
consumed by households consumption C
` Value of new investments (non residential/residential/change in
inventories) gross private investment I` Value of purchases of goods and services by the government G
` Value of goods exported minus the value of goods imported
resulting in Net Exports Xn
` Net factor Income from Abroad NFIA
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Net factor Income from AbroadNet factor Income from Abroad --
difference between factor incomes (derived
from selling the services of factors of production) received
from abroad by normal residents of India for rendering factor
services in other countries and the factor income paid to the
foreign residents for factor services rendered by them in thedomestic territory of India.
GNP = C + I + G + Xn + NFIA
CONDITION LAND LABOUR CAPITAL ORG.
Foreigners in India (+) Rent (+) Wages (-) Interest (-) Profit
Indians Abroad (-) Rent (-) Wages (+) Interest (+) Profit
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o Defined as the value of all final goods and
services produced by all normal residents as well
as non-residents working in the domestic territory
of the country but does not include Net FactorIncome earned from Abroad.
o Hence, the difference between GNP and GDP will
be the value ofNet Factor Income earned fromAbroad.
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GDP = GNP (Net Factor Income from
Abroad)
GNP = GDP + (Net Factor Income from
Abroad)
GNP limited to people of India, irrespective of
their place of earningGDP limited to domestic borders of India,
irrespective of who works
GDP = C + I + G + Xn
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Factor cost it refers to the total cost of all factors
of production consumed in producing goods and
providing services.
Market Price It is the price paid by the customer
for the product
Factor Cost = Market Price Tax + Subsidies
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` Agriculture and allied activities
` Industry
` Mining & Quarrying
` Manufacturing
` Electricity, Gas and Water Supply
` Services
` Construction
`
Trade, Hotels, Transport & Communication` Financing, Insurance, Real Estate & Business Services
` Community, Social & Personal Services
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` Private Final Consumption expenditure
` Government Final Consumption expenditure
` Gross fixed capital information
` Changes in stocks` Valuables
` Exports
` Imports
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GDP @ Q 1 Q2 Q3 Q4
Factor Cost 1667160 1692800 1934502 2012528
Market Price 1762793 1808963 2079416 2224454
Values in (`crores)
GDPGrowth Rate for FY 2010 8.7%
GDPGrowth Rate estimate for FY 2011 8.5%
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` Net National product or National Income at Factor Cost` Why it is called national income?
It is the sum of all incomes earned by
suppliers of factors of production for their contribution
of land,labour,capital and entrepreneurial ability which gointo the years net production.
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` Personal income is sum of all income actually receivedbyall individual or households during a year.
` National income,that is total incomes earned
` Personal income,that is total income received
Personal Income=National incomesocial security
contribution-corporate income tax-undistributed
corporate profit(these are not actually received by
house holds )+transfer payments(This is received by
then but not currently earned)
Transfer payment like old age pensions,unemployment
compensation,relief payments,interest payments on the
public debt
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DISPOSABLE
INCOME =PERSONAL INCOME-PERSONAL
TAXES
DI=CONSUMPTION+SAVING
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Factor of income of arise from production of goods
and services and since incomes are spent on goods
and services produced, three methods of measuring
national income1. Value Added Method
2. Income Method
3. Expenditure Method
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In this method the contribution of each
enterprise to the generation of flow of goods and
services are measured. Under this method , the
economy is divided into different industrial sectorsuch as
Agriculture, Fishing, Mining, Construction,
Manufacturing, trade and Commerce, Transport,
Communication and other services.
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(NVAFC) net value added at factor cost:
The NVAFC by each productive enterprise as
well as by each industry or sector is estimated. To
find the NVAFC measure of by each industry requiresto find out the value of output.
value of output of an enterprise is found out by
multiplying the physical output with market prices of
the goods produced.
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To arrive the NVAFC by an enterprise we have to
subtract the value of output of enterprise:
` Intermediate consumption which is the value of
goods (raw materials, fuels, purchased from otherfirms)
` Consumption of fixed capital (depreciation)
` Net indirect taxes
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Summing up the NVAFC by all enterprises of
an industry gives us the NVAFC of each industry.
Then we add up NVAFC by all industries to get Net
Domestic Product at factor cost (NDPFC
).Lastly, to the NDP we add the net factor
income from abroad to get Net National Product at
factor cost (NNPFC) which is also called national
income.NI or NNPFC = NDPFC + Net factor income from
abroad
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This method measures national income from
distribution at the phase of distribution and appears
as income paid and received by individuals of the
country. Therefore national income calculating byadding up all individuals of a country, rent of land,
wages & salaries of employees, interest on capital
etc.,
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Measurement of NI through income method involves
the following main steps:
` Like the value added method, identify productive
enterprises and then classify various industries.` Classify the factor of payments. (compensation of
employees, rent, interest, profits)
` To measure factor payments.
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` Adding up of factor payments by all enterprises
belonging to an industrial sector.
` (NDPFC) National Domestic Product at factor cost
able to find by summing up the incomes paid outby the industrial sectors.
` Finally, by adding net factor income earned from
abroad to NDPFC we get net national product at
factor cost (NNPFC) which is also called nationalincome.
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Expenditure method arrives at national income
by adding up all expenditures made on goods and
services during a year.
`
Final private consumption expenditure, and isdenoted by C.
` Government final consumption expenditure, and is
denoted by G.
` Gross domestic investment and is denoted by I or(GDFC) Gross domestic capital formation.
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` The expenditure made by foreigners on goods and
services of a country exported to other countries
which are called exports and are denoted by X.
Import is denoted by M. To estimate net exports(i.e., exports imports)
We add up the above four types of expenditure
to get final expenditure on gross domestic product at
market prices (G
DPMP).GDPMP = C + G + I + (X M)
= C + G + I + Xn
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On deducting consumption of fixed capital (i.e.,
depreciation) from GDPMP we get Net Domestic
Product at market prices (NDPMP).
In this method, we then subtract net indirect taxes(i.e., IT subsidies) to arrive at NDPFC.
NNPFC = GDPMP Consumption of Fixed capital
- Net Indirect taxes + Net factor Income
from abroad.
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NATIONAL INCOME :
ITMEASURES THE VALUE OF AGGREGATE O/POF GOODS AND SERVICES
PRODUCEDWITHIN A COUNTRY IN A YEAR .
ECONOMIC WELFARE :
SINCE GOODS & SERVICES SATISFY THE WANTS OF THE PEOPLE,ITSOFTEN BEEN USEDAS AMEASURE OF SATISFACTION OR ECONOMIC
WELFARE OF THE PEOPLE.
SO GREATERTHE MAGNITUDE OF NATIONAL INCOME,THE GREATERTHE
LEVELOF ECONOMIC WELFARE.
IN RECENTYEARS DOUBTS HAVE BEEN EXPRESSEDABOUTTHE
VALIDITY OF NATIONAL INCOME OR GROSS NATIONAL PRODUCT (GNP)
AS AMEASURE AND INDEX OF ECONOMIC WELFARE.
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INORDERTOOBTAIN ATRUE MEASURE OF ECONOMIC WELFARE ,SOME
ADJUSTMENTS BOTH IN THE FORMOF ADDITIONS AND SUBTRACTIONS HAVE
TOBE MADE IN THE AGGREGATE OF NATIONAL INCOME.
EXAMPLE : IF THE AVERAGE WORKING HOURS ARE REDUCED,THIS IS LIKELY
TOREDUCE NATIONAL INCOME ORPRODUCTION BUT IT GIVES MORE
LEISURE TOPEOPLE.
NEW : NET ECONOMIC WELFARE
NEW= REAL GNP-DEPRICIATION
+ VALUROF LEISURE
+VALUE OF NON MARKETACTIVITIES(Personal Services)
-ENVIRONMENTPOLLUTION
-REGRETTABLE COST(remedial work is important when problems are
identified)
Thus , composition of national output as between wage goods and luxuries and also the
distribution of goods between individuals determine welfare to a great extent.
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With the increase in total national income and per capita income ,
THE RICH ARE GETTING RICHER ANDPOOR GETTING POORER.
A COUNTRYS NATIONAL INCOME ANDPER CAPITA INCOME MAY BE
VERYHIGH BUTTHE WELL BEING OF THE PEOPLE MAY BE VERY LOW
By contributing more for production of war materials.
By increasing working hours which impair their health and efficiency.
By introducing Labour-saving machinery large no .of workers are out of
employment.
These above types of growth in national income which cannot increase in socialwelfare.
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