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

Economics Class 12
Macroeconomics

It is net money value of Goods and Services Produced in domestic territory after Depreciation

It is also called Net Domestic Product at Factor Price (NDP FC )

Formula

NDP FC = GDP FC - Depreciation

Example

Suppose total value of goods and services produced in DOMESTIC TERRITORY is 100

Depreciation on Maintaining Fixed assets is 20

What is Domestic Income?

 GDP FC 100 Less: Dep 20 NDP FC (Domestic Income) 80

#### Why is this Depreciation Reduced?

It is reduced to account for wear and tear of capital goods

A part of Income which a country earned is consumed in maintaining existing capital goods (fixed assets)

So we reduce it to get correct Net Domestic Product

In above case

Country earned income of Rs 100 but out of this, Rs 20 was spent towards Depreciation

Hence, country actually earned Domestic Income of Rs 80

### Transcript

It is net money value of Goods and Services Produced in domestic territory after Depreciation It is also called Net Domestic Product at Factor Price (NDPFC ) Formula NDPFC= GDPFC - Depreciation GDPFC It is gross money value of Goods and Services Produced in domestic territory FORMULA GDPFC = GDPMP - Net Indirect Taxes It is not Domestic Income NDPFC It is net money value of Goods and Services Produced in domestic territory FORMULA GDPFC =GDPMP - Net Indirect Taxes NDPFC= GDPFC - Depreciation It is called Domestic Income Example Suppose total value of goods and services produced in DOMESTIC TERRITORY is 100 Depreciation on Maintaining Fixed assets is 20 What is Domestic Income? GDPFC 100 Less: Dep 20 NDPFC (Domestic Income) 80 Why is this Depreciation Reduced? It is reduced to account for wear and tear of capital goods A part of Income which a country earned is consumed in maintaining existing capital goods (fixed assets) So we reduce it to get correct Net Domestic Product In above case Country earned income of Rs 100 but out of this, Rs 20 was spent towards Depreciation Hence, country actually earned Domestic Income of Rs 80