National Income GDP NDP GNP NNP & Inflation Economics ExamPappu

Net Domestic Product (NDP) is a measure that reflects net value of goods & services produced within a country after accounting for depreciation. Net domestic product not only covers the accounting depreciation but also accounts for other decreases in asset values, for example, obsolescence and destruction. The frequency and scope of such replacements can vary by type of capital assets. Machinery that is put to regular use may need parts replaced regularly until the entire piece of equipment is no longer usable. While that may take many years, barring unexpected damage or defects, there is a cycle of equipment failure and replacement. Part of the machinery in a factory’s production line may need to be replaced while another set of similar machines continues to function within the same factory.

Consequently, it is the sum of all a nation’s financial operations, measured in monetary terms over a year. National income is a confusing term frequently interchanged with national dividends, production, and spending. The definition of NDP and national income can help us grasp this topic. The net domestic product definition refers to the measure or value of the country’s output after it has been adjusted for the amounts that have been consumed.

What is the NDP formula, and how does NDP work?

The acquisition of the replacement machinery would be factored into the depreciation aspect of the NPI. • Agricultural policy is the set of government decisions and
actions relating to domestic agriculture and imports of foreign agricultural
products. ndp is obtained by (2) as the total costs or earnings of inputs producing output. Because profit is a residual, both approaches will yield exactly the same total GDP. Mixed-income is income earned from combined and non-specialized or non-separable occupations.

This can be done by measuring GDP at constant prices which is called real GDP. To find out the real GDP, a base year is chosen when the general price level is normal, i.e., it is neither too high nor too low. On the contrary, GDP may increase as a result of fall in prices in a year but actually it may be less as compared to the last year. In both 5 cases, GDP does not show the real state of the economy. To rectify the underestimation and overestimation of GDP, we need a measure that adjusts for rising and falling prices. It is the final value of all goods and services produced within a country’s borders.

• GDP includes income generated by foreigners within the boundary of the nation, whereas money coming from abroad does not include in the calculation of GDP.
• It simply suggests that the firms’ earnings are smaller than expected.
• These three components are excluded from national income because they do reach individuals.

The redistribution of wealth in favour of the poor is brought about by reducing the wealth of the rich and increasing the income of the poor. Gross national product (GNP) is the total final output produced with inputs owned by the residents of a country during a year. Nominal GDP is the value of goods and services produced in a year and measured in terms of rupees (money) at current (market) prices. In comparing one year with another, we are faced with the problem that the rupee is not a stable measure of purchasing power. GDP may rise a great deal in a year, not because the economy has been growing rapidly but because of rise in prices (or inflation). Gross national Product is the total summation of GDP & income coming from abroad.

Difference among GNP, NNP and Disposable Income National Income

The GDP is difficult to calculate, especially for non-economists. Therefore, the GDP is obtained by adding everyone’s annual consumption or yearly earnings. Both of these phrases are indicators of a nation’s economic health. Net Domestic Product (NDP) is calculated by subtracting depreciation from Gross Domestic Product (GDP).

So the production of Mercedes-Benz cars in Alabama is counted in GDP but not GNP. On the other hand, the production of cars by GM in China is counted in the GNP but not GDP. Personal income (PI) is all income received by Americans, whether it is earned or unearned.

Concepts of National Income at Market Price

For example, in many urban areas, efforts may be made to re-purpose underutilized real estate that has fallen into disrepair. Instead of expanding the sprawl of the city, older buildings might be torn down and replaced by new construction intended to fill the same use as the predecessor building. Such an example would qualify as depreciation and replacement.

Similarly, the income generated by the foreigner in a given country should be deducted from the GDP for the purpose of computing the GNP. Real income is national income expressed in terms of a general level of prices of a particular year taken as base. National income is the value of goods and services produced as expressed in terms of money at current prices. If the value of NDP is measured at the current market price, then it is NDP at the market price. Essentially, the measurement of the value of all final products produced within a country at the current market price after allowing for deprecation generates NDP at the market price. The value of products and services generated by a nation throughout a fiscal year is national income.

Gross National Product

Personal consumption expenditures of all people on all kinds of goods and services. Gross domestic investment or investment expenditures made by all businessmen in a year. Gross Governments’expenditure on all kinds of goods and services. Let us summarise all major national income concepts and their relations to one another. 5 shows, GNP can be measured either as a flow of products or as a sum of earnings. The deductions include income from government departments as well as surpluses from public undertakings, and employees’ contribution to social security schemes like provident funds, life insurance, etc.

It does not include economic activities done by foreigners in the country. GDP calculation is the most fundamental quantitative technique to determine the internal strength of any economy in terms of its national income. International Monetary Fund (IMF) and World Bank both uses this technique to rank any country in growth rate list. The NDP can predict the amount of money the country needs to spend to retain its current GDP.

Ans.The entire amount of money coming to a country through economic activity over a year is the National Income. It covers payments provided in interest, rent, salaries, and profits to all resources. The entire amount of money coming to a country through economic activity over a year is the National Income.

NDP at Income Cost

On the contrary, it is also possible that NNP might have increased but the price level might have fallen, as a result national income would appear to be less than that of the last year. In both the situations, the national income does not depict the real state of the country. To rectify such a mistake, the concept of real income has been evolved. It means factor cost is the total payment made by producers to the owners of factors of production in return for their assistance in the production of goods and services. So, it is the total of all earnings received by factors of production in terms of wages and salaries, rent, interest, and profit. Factor cost is also known as producers’ costs or pure cost of production.

The following chart shows a summary of the measurement of different concepts of national income at factor costs. It is also calculated by reducing depreciation from the gross domestic product at factor cost. Here we try to explain the meaning of different concepts of national income (GDP, NDP, GNP, and NNP) measured at factor cost/producer’s price. The following chart shows a summary of the measurement of different concepts of national income at market price. Essentially, the measurement of the value of all final products produced within a country at the current market price generates GDP at the market price.

The net national product is then the gross national product after depreciation is considered. The gross domestic product measures the final output by people and businesses located within the United States. However, there are several other national accounts that give a slightly different view of the economy. NDP is a yearly measure of a country’s economic production modified for depreciation. Together with disposable income, GDP, GNI, and personal gain, NDP is one of the primary indicators of economic growth released by the BEA or Bureau of Economic Analysis periodically. A growth in the NDP indicates an improvement in the financial health of the country, while a decline in the same exhibits stagnation.

• Industrial sector is the secondary sector in which the goods
and commodities are produced by transforming the raw materials. • Per capita Income is an indicator to show the living standard
of people in a country. It is obtained by dividing the National Income by the
population of a country. Private income is income obtained by private individuals from any source, productive or otherwise, and the retained income of corporations. It can be arrived at from NNP at Factor Cost by making certain additions and deductions.

The NDP is important, as it provides insight into the net book value of a country’s goods and services. Understanding the NDP value can help to better understand the growth of the economy. Depreciation refers to the decrease in the value of capital goods due to wear and tear, obsolescence, or the passage of time. It accounts for the capital stock used in the production process that needs to be replaced over time. Depreciation can be estimated using various methods, such as the straight-line method or the declining balance method.

By contrast, if a new housing community is developed, the construction of residences would be contributory to NDP.