National income concepts

i. Gross National Product (GNP)

GNP stands for the monetary value of all goods and services
that are
(i) currently produced,
(ii) sold through the official market,
(iii) not resold or used in further production,
(iv) produced by the nationally owned resources (factors of
production)
(v) valued at the market prices (current or constant).
GNP is a flow concept and includes only those items that are
produced during the period of time for which the GNP stands. GNP
accounts for only those goods and services, which are traded
through the official market.
Thus, it ignores the do it yourself activities as well as the
un/under reported productions.

 Intermediate goods are not included in GNP, for

avoiding double counting. Therefore,only the value
of final goods or alternatively values added at each
stage of production are included in it.
GNP belongs to the nation, and thus, it must be
produced by its owned factors of production only.
GNP at market price is inclusive of the indirect taxes
(T), net of subsidies (S) as it values the goods at the
prices paid by the end users. To get GNP at factor
cost ,one must deduct net indirect taxes.
GNP at factor cost= GNP at market prices- indirect
taxes+ subsidies.

ii. Gross Domestic Product (GDP)

It refers to the value of the goods and services produced
within the nations geographical territory, irrespective of the
ownership of the resources. Therefore, salary of an Indian visiting
professor in USA is the GDP of USA and the dividend earned by a
foreign company in India constitutes GDP of India. In view of this,
while GNP consists of income produced by the nations owned
resources irrespective of the place of production.
GDP refers to income produced
within the nations territory irrespective of the ownership of the
resources that produced it. The difference between the two concepts
is accounted for by the net factor income earned abroad(NIA).
Thus,
GDP(F)= GNP(F)-NIA
From the point of view of the employment generation at home, GDP
is more relevant than GNP,and hence, the former often receives a
greater attention than the latter.

iii. NNP:
GNP minus Depreciation.
NNP is measured at factor cost and market
prices.
NNP(FC) = NNP(MP) - indirect taxes +
subsidies
NNP(FC) is globally known as national income.
iv. NDP
GDP minus Depreciation.

Methods to calculate national

income
There are three different ways to
measure GDP:
Product Method, Income Method and
Expenditure Method.
These three methods of calculating
GDP yield the same result because
National Product = National Income
= National Expenditure.

Product method
In this method, the value of all goods and services produced in different industries
during the year is added up. This is also known as the value added method to GDP or
GDP at factor cost by industry of origin.
The following items are included in India in this:
agriculture and allied services;
mining;
manufacturing,
construction,
electricity,
gas and water supply;
transport,
communication and trade;
banking and insurance,
real estates and ownership of dwellings and business services
public administration and defense and other services (or government services).
In other words, it is the sum of gross value added

Limitations of product
method
1. Services of Housewives:
2.Intermediate and Final Goods
3. Second-hand Goods and Assets
4. Illegal activities
5. Consumer services
6. Inventory changes
7. Depreciation
8. Price changes

Income method
The people of a country who produce
GDP during a year receive incomes
from their work.
Thus GDP by income method is the
sum of all factor incomes: Wages and
Salaries (compensation of
employees) + Rent + Interest +
Profit.

Limitations

Owner occupied houses

Self employed persons
Goods meant for self consumption
Wages and salary paid in kind

Expenditure method
3. Expenditure Method:
This method focuses on goods and services produced within the country during
one year.
GDP by expenditure method includes:
(1) Consumer expenditure on services and durable and non-durable goods (C),
(2) Investment in fixed capital such as residential and non-residential building,
machinery, and inventories (I),
(3) Government expenditure on final goods and services (G),
(4) Export of goods and services produced by the people of country (X),
(5) Less imports (M). That part of consumption, investment and government
expenditure which is spent on imports is subtracted from GDP. Similarly, any
imported component, such as raw materials, which is used in the manufacture
of export goods, is also excluded.
Thus GDP by expenditure method at market prices = C+ I + G + (X M),
where (X-M) is net export which can be positive or negative.

Limitations

Government services
Transfer of payments
Durable user consumer goods
Public expenditure