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CA. NARENDRA BHAMBWANI CA-INTER ECONOMICS
ICAI –REVISION LECTURE
1- NATIONAL INCOME
Q1. Explain the following
1. Gross Domestic Product (GDP)
2. Gross National Product (GNP)
3. Net National Product (NNP)
(1) Gross domestic Product:-
• refers to money value of all types of goods and services produced
with the country.
• Gross domestic product refers to the total domestic output.
• It excludes goods produced in foreign country,
• While calculating Gross domestic Product, only the money value of
final goods and services. For example the value of cloth will be
taken in GDP but the value of raw cotton which was used for
making cloth will not be taken so as to avoid double counting. In
other words what ever is produced in the country is only included
in Gross Domestic Product.
Gross domestic product is calculated as under
Total value of final goods available in the country xxxx
Add:- Goods exported xxxx
xxxxx
Less:- value of goods imported xxxxx
Gross domestic product xxxxx
There are two methods of valuing gross domestic product
Gross Domestic Product at Market Price :
In this method The goods and services Produced in a country are valued
at Market Price. For example if 100 Bags of cement is produced the
market Price of 100 cement of bags will be included in Gross domestic
product. The Market price of a commodity includes the following
Market Price = Income to factors of Production (Wages + Interest + Rent
+ Profits) + Taxes - Subsidies
Gross Domestic Product at Factor Cost : In this method the goods and
services Produced in a country are valued at factor cost. For example if
100 bags of cement are produced we will not value 100 bags at the
market price but we will include only income received by factors of
production
Thus Gross domestic product at factor cost = GDP at Market Price -
taxes
+ subsidies.
In other words while calculating the value of goods and services
produced we only include cost paid to factors of Production.
Thus GROSS DOMESTIC PRODUCT INCLUDES THE FOLLOWING
CA. NARENDRA BHAMBWANI CA-INTER ECONOMICS
ICAI –REVISION LECTURE
1. Consumption goods : It includes market value of all the consumer
goods and services Produced in the country . It covers Perishable goods
such as
milk , vegetables electricity etc. It also covers market value of durable
goods such as television set, VCR, Car furniture etc and market value of
consumer services such as services of a doctor , advocate teacher etc.
2. Investment : GDP also includes Capital goods Produced in the country
and used as Private sector. It includes new factory Building
constructed
New Machines made during the current period.
3. Government Expenditure : It also includes amount spent by the
Government on consumer as well as capital goods and services.
Thus GDP = C + I + G + EXPORTS – IMPORTS
(2) Gross National Product (GNP):-
Gross National means Market values of goods and services produced in
the country and Net income from abroad ( foreign country).
While calculating Gross National Product only value of final goods and
services is included to avoid double counting.
• GNP = GDP + Net factor Income from abroad.
GNP = C + I +G + EXPORTS - IMPORTS + Income earned by Indian
national working in foreign countries - income earned by foreign
nationals in India.
While calculating GDP we include only value of goods and services
produced in the country but for calculating GNP we include Net income
from
abroad. Net Income from abroad means Income earned by Indian
national working in foreign countries - income earned by foreign
nationals in India.
In other word GROSS NATIONAL PRODUCT refers Income received
by People of the country.
Thus Gross national product includes value of goods and services
produced by the Indian Nationals and excludes the contribution of
Foreign nationals in the Production of goods and services.
Gross National Product may be valued at Market Price or at factor
cost
Gross National product at market price : In this method the goods and
services produced in a country are valued at market price. For example
if 100 bags of cement is produced the market price of 100 cement of
bags will be included in gross National product. The market price of a
commodity includes the following
CA. NARENDRA BHAMBWANI CA-INTER ECONOMICS
ICAI –REVISION LECTURE
Market price = income to factors of production ( wages + interest + rent
+ profits) + taxes - subsidies
Gross National product at factor cost : In this method the goods and
services produced in a country are valued at factor cost. For example if
100 bags of cement are produced we will not value 100 bags at the
market price but we will include only income received by factors of
production
Thus gross domestic product at factor cost = market price - taxes +
subsidies. In other words while calculating the value of goods and
services produced we only include cost paid to factors of production.
(3) Net National Product :- Before discussing the meaning of Net national
Product let us first under stand the meaning of depreciation. Production
of goods and services involve use of capital assets such as machines,
factory building etc. Production process involves wear and tear of fixed
assets.
Wear and tear or exhaustion of fixed asset during Production process is
called depreciation IN other words Production leads to creation of new
goods but some part of the capital goods such as machinery etc is
consumed during the production process. Net National Product refers
to Gross National Product - Depreciation.
THUS NNP = GNP - D
Q2 Distinguish between
a) Gross National Product and Net National Product
b) Gross domestic Product and Gross National Product
c) Gross domestic Product at Market Price and Gross Domestic Product at
d) Gross National Product at Market Price and Gross National Product at
Factor cost.
a) Gross National Product Net National Product
1. by the people of country Produced by the people of a
It includes net income from abroad. The country less
depreciation
2. GNP = GDP + Net Income from abroad NNP = GNP - Depreciation
3. GNP is always higher than NNP NNP is lower than GNP
b) Gross domestic Product Gross National Product
1. Gross domestic product Gross National Product refers
refers to Money value of money value of goods and
services
goods and services Produced Produced by the people of
the
with in country. It does not of the country . It includes
Net
include net income from abroad Income from abroad.
CA. NARENDRA BHAMBWANI CA-INTER ECONOMICS
ICAI –REVISION LECTURE
2. GDP = Market value of final GNP = GDP + Income of
Indian
of goods and services available citizens from abroad - Income
of
in the country + Exports - Imports foreign nationals working in
India
3. GDP = GNP - net income from GNP = GDP + Net income
from abroad abroad
c) Gross domestic Product Gross Domestic Product
at Market Price at Factor Cost
1. It refers to market It refers to value of goods
and
value of goods and services services at Cost paid to
factors
Produced in a country of Production
2. GDP at Market Price GDP at Factor cost = GDP at
market
= GDP at Factor cost Price - Taxes + subsidies
+ Taxes - Subsidies.
d) Gross National Product Gross National Product
at Market Price at Factor Cost
1. It refers to market It refers to valuing goods and
value of goods and services services produced by
thecitizens
Produced by the citizens of a country at cost paid to
factors of Production
2. GNP at Market Price GNP at Factor cost = GNP at
market
= GNP at Factor cost Price - Taxes + subsidies
+ Taxes - Subsidies.
Q3. What do you understand by the term " National Income " ? What
are the various methods of estimating national Income.
MEANING OF NATIONAL INCOME :
National Income refers to the money value of final goods and services
produced in a country during a year. National income also refers t to
aggregate factor income or aggregate expenditure.
According to the National committee of India " A National Income
estimated measured the volume of commodities and services turned out
during a given period, counted without duplication.
The various methods of counting national Income are
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