Page 211 - DECO405_MANAGERIAL_ECONOMICS

Managerial Economics

Notes And vice versa.
Category A Category B
Type 1 GNP at market price GOP at market price
NNP at market price NDP at market price
Type 2 GNP at factor cost GDP at factor cost
NNP at factor cost HDP at factor cost
1. Difference between the aggregates in category A and aggregates in category B is net factor
income from abroad.
2. Difference between the aggregates of type 1 and aggregates of type 2 is indirect taxes less
subsidies.
3. The difference between the two aggregates of each type in each category is depreciation.

13.1.4 Gross National Product and Gross Domestic Product

For some purposes we need to find the total income generated from production within the
territorial boundaries of an economy, irrespective of whether it belongs to the inhabitants of
that nation or not. Such an income is known as Gross Domestic Product (GDP) and found as:
GDP = GNP – Net factor income from abroad

Net factor income from abroad = Factor income received from abroad – Factor income paid
abroad.

Example: If in 1986 the GNP is 8,00,000 million, the income (including tax on such
incomes) received and paid 60,000 million, and 70,000 million respectively, then, the GDP in
1986 would be:
( 8,00,000 – 70,000 + 60,000) million = 7,90,000 million
GNP as a Sum of Expenditures on Final Products

Expenditure on final products in an economy can be classified into the following categories:
1. Personal consumption expenditure (c): The sum of expenditure on both the durable and
non-durable goods as well as services for consumption purposes,
2. Gross Private Investment (I ) is the total expenditure incurred for the replacement of
g
capital goods and for additional investment,
3. Government expenditure (G) is the sum of expenditure on consumption and capital goods
by the government, and

4. Net Exports (Exports - Imports) (X - M) constitute the difference between the expenditure
or rest of the world on output of the national economy and the expenditure of the national
economy on output of the rest of the world.
GNP is the aggregate of the above mentioned four categories of consumption expenditure.
That is,

GNP = C + I + G + (X – M)
g

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