Gross National Product (GNP):
It is defined as the sum of market values of all final goods and services produced by the residents of a country in a financial year within or outside the domestic boundary of that country.
GNP has the following 3 components –
- Value of consumers’ goods and services produced in a year or in other words, consumption expenditure (C) by households of a country
- Value of new capital goods produced and addition to the inventories of goods such as raw materials, unfinished goods and consumer’s goods produced but not sold during a year implies gross private investment expenditure (I)
- Value of purchases of goods and services by the government which is known as government expenditure (G)
- Net Exports (NX) = Value of goods exported (X) -Value of goods imported(M)
- Net Factor Income from Abroad – It is the difference between factor income received from abroad by normal residents of a country for rendering services in other countries and the income paid to the foreign residents for their services within the domestic boundary of the country concerned.
Gross Domestic Product (GDP) :
It is the sum of monetary value of all final goods and services produced by normal residents as well as residents within the domestic territory of a country in a given financial year. The crucial point here is that it does not include net income from abroad.
We also need to distinguish the concept of final goods and intermediate goods here.
- Final goods are those goods which are purchased for final use and not for resale or further processing.
- Intermediate goods are those goods which are purchased or used further processing or resale.
- It is very important to note that the value of final goods include the value of all intermediate goods. Therefore, the sale of intermediate goods is excluded from GNP to avoid the problem of double counting.
Net National Product (NNP) :
It is the sum of market values of all final goods and services produced within or outside the domestic territory of the country by the residents of a country after providing for depreciation. The drop in the market value of fixed capital e.g. machinery etc. due to wear and tear is called depreciation.
NNP = GNP – Depreciation
Now NNP at market prices and NNP at factor cost are two different concepts. The difference arises from the fact that indirect taxes and subsidies cause market prices of output to be different from the factor incomes resulting from it. Therefore, we deduct indirect taxes and add subsidies to NNP at market prices to get NNP at factor cost.
NNP(FC) =NNP(MP) – Indirect tax + Subsidies
NNP Vs NNI :
While NNP is the sum of all market values added of all final goods and services, net national income (NNI) is the total value of income generated by output. Basically, the output approach measures a country’s output as the sum of all value added in the economy but the income method measures the value of total output at market prices as the sum of all factor incomes generated by the production process.
Personal Income (PI) :
It is the sum of all incomes actually received by all individuals or households during a given year, whereas NI is total income earned. We must subtract from NI those incomes which are earned but not received and add those incomes which are received but currently not earned.
PI = NI – (Social Security Contributions + Undistributed Corporate Profits + Corporate Income Taxes + Net Interest Paid) + Transfer Payments
Disposable Income = PI – Personal Taxes
Real GNP Vs Nominal GNP :
Nominal GNP measures the money value of final goods and services produced in a given year at the prices at which they actually were sold in that year. On the other hand, real GNP measures the monetary value of final goods and services produced in a given year at the prices at which they would be sold in some fixed base year or benchmark year.
GNP Deflator :
GNP Deflator is the implicit price deflator which can be expressed as the ratio of nominal GNP to real GNP. These deflator reflects what is happening to the overall level of prices in the economy. It measures the price of output relative to its price in the base year.