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

Economics Class 12
Macroeconomics

It is gross money value of Goods and Services Produced by normal residents of a country after Depreciation

It is also called Net National Product at Factor Price (NDPFC)

Formula

NNP FC = GNP FC - Depreciation

Example

Suppose total value of goods and services produced by Normal Residents of a country is 140

Depreciation on Maintaining Fixed assets is 20

#### What is National Income?

 GNP FC 140 Depreciation 20 NNP FC (National Income) 120

#### 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 National Product

In above case

Country earned income of Rs 140 but out of this, Rs 20 was spent towards Depreciation

Hence, country actually earned Domestic Income of Rs 120

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### Transcript

It is also called Net National Product at Factor Price (NDPFC) Formula NNPFC= GNPFC - Depreciation GDPFC It is gross money value of Goods and Services Produced by Normal Residents of a country FORMULA GNPFC = GNPMP - Net Indirect Taxes It is not National Income NDPFC It is net money value of Goods and Services Produced by Normal Residents of a country FORMULA GNPFC = NNPFC= GNPFC - Depreciation It is called National Income Example Suppose total value of goods and services produced by Normal Residents of a country is 140 Depreciation on Maintaining Fixed assets is 20 What is National Income GNPFC 140 Depreciation 20 NNPFC (National Income) 120 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 National Product In above case Country earned income of Rs 140 but out of this,Rs 20 was spent towards Depreciation Hence,country actually earned Domestic Income of Rs 120 Difference between Domestic income and National Income Domestic Income NDPFC National Income NNPFC It is net money value of Goods and Services Produced in Domestic Territory after Depreciation It is net money value of Goods and Services Produced by Normal Residents of a country after Depreciation FORMULA NDPFC= GDPFC - Depreciation FORMULA NNPFC= GNPFC - Depreciation How to get National Income from Domestic Income? National Income = Domestic Income+ Net Factor income from Abroad NNPFC= NDPFC + NFIA Example Domestic Income Income earned by Foreign nationals in India Income earned by Indian Nationals Outside India 5000 100 200 In this case NFIA 200-100 100 National Income = Domestic Income+ Net Factor income from Abroad NNPFC= NDPFC + NFIA = 5000 + 100 = 5100 Example Income earned by Indian Citizen in India Depreciation Income earned by Foreign nationals in India Income earned by Indian Nationals Outside India Indirect Taxes What Is Domestic Income and National Income? 1000 100 600 200 200 What Is Domestic Income and National Income? Calculation of Domestic Income Step 1 GDPMP Gross market value of Goods and Services produced in domestic territory. = Income earned by Indian Citizens in India + Foreign Citizens in India = 1000+600 = 1600 Step 2 NDPMP = GDPMP - Depreciation = 1600 - 100 = 1500 Step 3 NDPFC (Domestic Income) = NDPMP - Net Indirect Tax = NDPMP - (Indirect Tax - Subsidy) = 1500 - 200 = 1300 Step 4 Calculate NFIA = Factor income from abroad - Factor income to abroad = 200 - 600 = -400 Step 5 NNPFC (National Income) = NDPMP + NFIA = 1300 - 400 = 900