2.2 Different Concepts of National Income: GDP, NDP, GNP & NNP at Market Price & Factor Cost, Personal Income (PI), Disposable Personal Income (DI), Per Capita Income (PCI)

→ GDP is defined as the market value of all final goods and services produced within a country’s borders during a year. It includes the value of goods and services produced by both citizens and foreigners within the country’s boundaries.

It is calculated as:
GDP = P₁Q₁ + P₂Q₂ + P₃Q₃ + . . . + P_nQ_n
where
P = Price, and
Q = Quantity of goods and services produced

---

Q) Define GDP at market price and factor cost.

→ GDP at market price is the total value of all goods and services produced in an economy, including the taxes and subsidies that are applied to those goods and services.

→ On the other hand, GDP at factor cost is the total value of all goods and services produced in an economy, without the taxes and subsidies that are applied to those goods and services.

→ The relationship between GDP at market price (GDPmp) and GDP at factor cost (GDPfc) can be represented by the following formula:
GDPmp = GDPfc + Taxes on products – Subsidies on products
or
GDPmp = GDPfc + Net indirect taxes (where Net indirect taxes = Taxes – Subsidies)

---

Q) Under what condition GDP at MP (market price) equals to GDP at FC (factor cost)?

→ When the net indirect tax is zero, GDP at MP equals to GDP at FC. This is clear from the following formula:
GDPmp = GDPfc + Net indirect taxes

---

Q) Transfer payments are excluded from GDP. Why? [2075, Q.No.2, TU]

→ Transfer payments are excluded from GDP because they do not represent production. GDP is the total value of the final goods and services produced in an economy, but transfer payments do not represent the production of any such goods or services in the economy.

---

Q) What is NDP?

→ NDP is defined as GDP minus depreciation (decrease in value) of capital goods used in the production process.It gives a more accurate picture of the actual value of goods and services produced because it considers the decline in the value of fixed capital assets over time.

NDP = GDP – Depreciation

---

Q) What is GNP?

GNP is defined as the market value of all final goods and services produced by a country’s residents (both domestically and abroad) during a year.It includes the production by citizens who are working abroad and excludes the production by foreigners within the country’s borders.

In simple terms, GNP is the sum of GDP and net factor income from abroad.

GNP = GDP + Net factor income from abroad*

---

Q) What is NNP (Net National Product)?

→ NNP is defined as GNP minus depreciation.It is similar to NDP but focuses on the net output of goods and services produced by a country’s residents (both domestically and abroad).

NNP = GNP – Depreciation

Q) What is national income?

→ National income is the total amount of income of a country in a given period of time. It is used to understand the overall economic performance and living standards of a country.

National income can be calculated using different methods like the income method, the product method, and the expenditure method , but the most common method is the income approach.

---

Q) What do you mean by NI (National Income) at current price?

→ NI at current price means the national income calculated at the current year’s market price of the goods and services produced in the economy.

---

Q) What is the difference between personal and disposable income?

→ Personal Income is the total income received by individuals from all sources, including wages, salaries, rent, interest, and transfer payments by government, before the payment of direct taxes during a year. On the other hand, Disposable Income is the income available to individuals for spending or saving after the payment of personal income taxes during a year.

---

Q) What is per capita income?

→ Per Capita Income is defined as the national income of a country divided by its total population. PCI provides an idea of the average standard of living in a country.

Per capita income = NI/Total population

Brief Numerical Answer Questions