Lecture 3- What is GDP, GNP, NDP, NNP and Per Capita Income ? - YouTube

Hello friends,

Welcome to PrepMate classes!

In this lecture we will learn about the indicators of economic activity namely

Gross Domestic Product (GDP) Gross National Product (GNP)

Net Domestic Product (NDP) Net National Product (NNP)

And Per Capita Income.

GDP or Gross Domestic Product is the money value of all the finished goods and services

produced within a country's borders in a specific time period.

GDP is usually calculated annually or on quarterly basis.

Thus, if foreign companies such as Vodafone, Ford and others are producing in India, the

production is part of India’s GDP.

This includes goods and services produced by the residents of the country within the

country’s borders and those produced by foreign residents as well as companies by

investing in that country.

But what does GDP indicate and why are we so concerned about it?

GDP indicates economic health of a country as well as the standard of living of the residents.

More the GDP greater the production of goods and services which in turn indicates higher

consumption level of the residents.

Increased consumption level is in turn associated with a higher standard of living of the residents.

Fall in GDP indicates reduced production of goods and services which in turn indicates

fall in the consumption level of the residents.

Reduced consumption level is in turn associated with a poor standard of living of the residents.

GNP or Gross National Product refers to goods and services produced by residents of a country

within and outside its borders.

We can calculate GNP from GDP by adding income earned by Indians abroad and subtracting incomes

earned by foreigners in India.

Thus, if Indian companies such as Tata, Infosys and others are producing outside of India,

the production is part of India’s GNP.

But it does not include goods and services produced by foreign nationals within the country’s

borders.

In India’s case, value of GDP is higher than that of GNP because India receives more

investment from other countries than it makes in them.

NDP Production of goods and services involves

consumption or reduction in value of assets used to produce goods and services.

This consumption or reduction in value of asset is called depreciation.

Depreciation can occur in any asset that is used for production; such as machinery, furniture

and equipments.

Whenever we calculate net value from gross value, we subtract depreciation out of gross

value.

Therefore, Net Domestic Product or NDP is calculated by subtracting depreciation from

the Gross Domestic Product (GDP).

Similarly, NNP is calculated by subtracting depreciation from the GNP.

All the indicators can be calculated either at market price or factor cost.

The factor cost refers to the cost of factors of production that is incurred by a firm when

producing goods and services.

For example, to manufacture a car, factor cost includes the rent of land and cost of

setting up a manufacturing unit, the cost of hiring labours and salaries of employees,

rent of machinery, cost of obtaining raw materials and the cost of funds used to manufacture

the car.

The market price is the price that the consumers will pay for the product when they purchase

it from the market.

For instance, when you purchase a car from the market then the market price includes

the factor cost, we calculated earlier, and also, indirect taxes.

Thus, taxes charged by the government are added to the factor cost.

In this case, market price is higher than the factor cost.

In other cases factor cost can be higher than the market price.

For instance, to promote consumption of fertilizers government gives large subsidies to farmers.

Thus, for final market price subsidies are subtracted from factor cost of fertilizers.

Net National Product or National Income is the collective income earned by nationals

of a country in a given time period.

How can we arrive at National Income from GDP?

GDP is usually calculated at market price.

If we subtract depreciation from GDP at the market price we arrive at NDP at the market

price.

Further from NDP, if we subtract factor income earned by foreigners in India and add factor

income earned by Indians abroad we arrive at NNp at the market price.

From the NNP if we subtract the indirect taxes and add the subsidies given by government,

we arrive at NNPFC i.e.

Net National Product at factor cost or National Income.

When the national income of a country is divided by the total population of that country we

arrive at an average income known as Per Capita Income.

Per capita income is a better economic indicator than GDP.

There are instances when the rate of population growth is higher than the rate of increase

in GDP.

In such a case, although GDP increases, the standard of living of residents remains same

or deteriorates.

Per Capita income suffers from its own limitations.

Let us assume a nation where 10% of the national income is distributed between 90% of the population

and 90% of the national income is cornered by 10% of the elites.

Here, the calculation of per capita income will not display the economic disparity existing

in the country.

We hope you enjoyed this video.

Thank you.

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