GROSS DOMESTIC

PRODUCT
GROSS NATIONAL
PRODUCT
GDP
GNP

GDP

GDP is market value of all final goods and

services produced within the domestic
territory of a country during a year. It
includes income from exports and payment
made on imports during the year. It does not
include the earnings of nationals working
abroad and foreign nationals working in our
country.

GDP AT FACTOR COST

As a rule, the final value of goods and

services at market price must be identical to
the cost involved in the production (at factor
cost). In real life it is not so, because prices
include indirect taxes.

Hence

GDP at Factor cost =

GDP at market prices
Indirect Taxes + subsidies.

THERE ARE DIFFERENT WAYS TO MEASURE GDP.

PRODUCTION OR OUTPUT METHOD

In this method the value of all goods and

services produced in different industries
during the year is added up. Only the final
goods and services are included and the
intermediary goods and services are left out.
According to this method in India the
economy is divided into eight broad sectors
including primary sector, secondary sector
and tertiary sector.

Agriculture, Forestry and Fishing

Mining and Quarrying, registered
Manufacturing
Electricity, Gas and Water Supply
Construction
Trade, Hotels, Transport and Communication
Financing, Insurance, Real Estate and
Business services
Community, Social and Personal Services

One advantage of this method is that it

shows the relative contribution of each
sector to national income. In India
Production method is applied in primary
sector, income method in certain organized
sectors and average productivity of labour is
calculated in measuring national income in
service sectors

INCOME METHOD

The people of a country who produce GDP during

a year receive incomes from their work. National
income is the sum of factor incomes: rent,
wages, interest and profit. This method
approaches national income from the distribution
side. In the income method the remuneration to
various factors are estimated. National income is
the summing up of the incomes of all individuals
(rent, wages, interest and profit) in the country.
This method indicates the distribution of national
income to different income groups

EXPENDITURE METHOD

This method arrives at national income by adding up all the

expenditure made on goods and services during a year. GDP by
expenditure method includes
1) Private consumption expenditure on goods and services,
2) Gross domestic private investment expenditure in fixed capital
such as residential and
non residential building, machinery and inventories
3) Government expenditure on final goods and services
4) Export of goods and services produced by people of the country
5) Less imports. Expenditure on imports is subtracted.

Thus we can get national income by summing up all consumption

expenditure and investment expenditure by all individuals and
government during a year.

VALUE ADDED METHOD

Another method of measuring national income

is the value added by industries. The difference
between the value of material outputs and
inputs at each stage of production is the value
added. If all such differences are added up for
all industries in the economy we arrive at the
gross domestic product.

If double counting is fully avoided, the national

income calculated by final goods method and
value added method should be the same.

GROSS NATIONAL PRODUCT

GNP

GNP is the money value of all final goods and

services produced in a country during a year.
In addition to GDP it includes Net Factor
Income from Abroad (NFIA). NFIA is any
income earned by residents from overseas
investments, minus income earned within the
domestic economy by foreign residents.
. GNP = GDP + net factor income from abroad
(NFIA).

NET NATIONAL PRODUCT

When depreciation is deducted from GNP it is

called NNP. Some fixed capital wears out, or
damaged in the process of production. It is
called depreciation or capital consumption
allowance.