Chapter 2 National Income - Part 2 Concept of GDP and GNP

Economics Class 12
Macroeconomics

### Transcript

Lets first learn about what are Indirect taxes What are Direct and Indirect Taxes? Tax Direct Tax Indirect Tax Person pays tax from own pocket Person collects tax from Customer Pays to Government Example Income Tax Example VAT, Service Tax, Excise GST Example of Indirect Tax-GST Suppose P Sells gods to Q for Rs 2000 If No GST applicable P Sale 2000 Q Amt Received 2000 If no GST Applicable,Q Pays him 1000 If 5% GST applicable P Sale 2000+5% GST Q Amt Received 2100 Deposit to Govt Rs 100 GST If 5% GST Applicale,Q pays P total amount including GST P deposits it to the governmenr What is GDP in this Case? GDP mean Gross Value of goods and Services produced P Sale 2000+5% GST Q Amt Received 2100 Deposit to Govt Rs 100 GST Different Types of GDP GDP at Market Price GDPMP It includes value of net indirect taxes also GDPMP =2100 GDP at Factor Cost GDPFC It does not include value of net indirect taxes GDPFC GDPMP - Indirect Taxes =2100-100 =2000 Example 2-Calculation of GDP Mp and GDP FC Suppose in an economy,there are only 3 persons - A,B and C A Farmer grows Mango Mango Rs 40 B Factory makes Mango Jam Mango Jam Rs 100+5 GST = 105 C Consumer What is GDP in this case? GDP at Market Price GDPMP GDP at Factor Cost GDPFC It is Gross Market value of all final goods and services produced within Domestic Territory It is Gross Money value of all final goods and services produced within Domestic Territory It includes Net Indirect Taxes It does not Include net Indirect Taxes GDPMP =105 GDPFC =105-5=100 What is Subsidy? Subsidy is Discount or Economic Assistance provided by Govt It leads to reduction in price paid by consumer Example Price of Cooking Gas Less Subsidy provided by Govt Net Amount paid by Consumer 1000 300 700 Less amount paid by consumer due to Subsidy Why govt provides Subsidy? To Make Product cheaper so that poor people can afford it Example To promote Use of product Example Subsidy on Electric Cars Difference between Tax and Subsidy Indirect Tax It is tax charged by govt on sale of goods and services Subsidy Subsidy is Discount or Economic Assistance provided by Govt It leads to Increase in amount paid by consumer Amt GST Total 100 20 120 It leads to Increase in amount paid by consumer Amt Less Subsidy Total 100 5 95 Calculation of GDP Calculation of GDP GDPMP 120 GDPFC = GDPMP - Indirect Taxes = 120 - 20 = 100 To get GDPFC Indirect taxes are Reduced GDPFC = GDPMP + Subsidy = 95+5 = 100 To get GDPFC Subsidy is added What are Net Indirect Taxes? Net Indirect Taxes = Indirect Taxes - Subsidy They are Reduced from GDPMP to arrive at GDPFC Example Amt Less Subsidy Add GST Total 100 5 20 115 Calculation of GDP GDPMP Net Indirect Taxes 115 = IndirectTaxes - Subsidy = 20-5 = 15 GDPFC GDPMP - Net Indirect Taxes = 115-15 = 100 Difference between GDPMP and GDPFC GDP at Market Price GDPMP GDP at Factor Cost GDPFC It is Gross Market value of all final goods and services produced within Domestic Territory It is Gross Money value of all final goods and services produced within Domestic Territory It is Gross Money value of all final goods and services produced within Domestic Territory It includes Net Indirect Taxes It does not Include net Indirect Taxes GDPFC = GDPFC = GDPFC = GDPMP - Net Indirect Taxes GDPMP - (Net Indirect Taxes-Subsidy) GDPMP - Net Indirect Taxes+ Subsidy It is considered for calculating Domestic Income

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#### Maninder Singh

CA Maninder Singh is a Chartered Accountant for the past 14 years and a teacher from the past 18 years. He teaches Science, Economics, Accounting and English at Teachoo