Page 29 - DECO402_Macro Economics

Macroeconomic Theory

Notes Gross domestic product at market price (GDP ) = During one financial year, under the domestic
MP
border of a country, total summation of value addition by all production units. = During a financial
year under the domestic boundary of a country produced final goods and services value.
Using Income Method GDP is measured by following type:
MP
Gross Domestic Product at market price (GDP ) compensation of employees + Rent + Interest +
MP
Profit + Mixed income of self employed Net indirect tax + depreciation or consumption of permanent
capital
Using Expenditure Method, Gross Domestic Product at Market Price is measured by following
methods
Gross Domestic Product at Market Price (GDP ) = private final consumption expenditure +
MP
Government final consumption expenditure + Gross domestic permanent capital Formation + changing
in producer’s stock (Final stock – initial stock) + net export (export – import).

(ii) Gross Domestic Product at Factor Cost (GDP )
FC
Attain of gross domestic product at factor cost, from Gross domestic product at market price, net
indirect tax (indirect tax - subsidy) is deducted.
Gross Domestic Product at Factor cost = Gross Domestic Product at Market Price – Net Indirect Tax
(Indirect Taxes – Subsidy)
GDP = GDP – Net Indirect Taxes (Indirect Tax – Subsidy)
FC MP

(iii) Net Domestic Product at Market Price (NDP )
MP
Deducting depreciation from Gross Domestic product at Market Price (GDP ), Gross domestic
MP
product at market price (NDP ) is got. Therefore
MP
Net Domestic Product at Market Price = Gross Domestic Product at Market Price – Depreciation
(Consumption of Fixed Capital)
NDP = GDP – Depreciation (Consumption of fixed capital)
MP MP

(iv) Net Domestic Product at Factor Cost (NDP )
FC
If from net domestic product at market price cost, net indirect taxes is deducted then we will get net
domestic product at factor cost. Hence
Net Domestic Product at Factor Cost = Net Domestic Product at Market Price – Net Indirect Tax
NDP = NDP – Net Indirect Taxes
MP
FC
Self Assessment
Stat whether the following statements are True or False :
7. The real meaning of concept of national income is national income at factor cost.
8. High level of national income shows low level of production of country.
9. ‘National Income’ word is pure concept.
10. During a financial year, by normal resident of a country as a result of factor services did value
addition’s sum is called national income.

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