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

Economics Class 12
Macroeconomics

Step 1 Calculate GDP MP

GDP MP = Income Earned by Indian Citizens in India + Income earned by Foreign Citizens in India

(Income earned within the domestic territory)

Step 2 Calculate GDP FC

GDP FC = GDP MP - Net Indirect Taxes

GDP FC = GDP MP - (Indirect Taxes - Subsidy)

Step 3 Calculate Domestic Income (NDP FC )

NDP FC = GDP FC - Depreciation

Step 4 Calculate Net Factor Income from Abroad (NFIA)

NFIA = Factor Income Earned from Abroad - Factor income Paid to Abroad

Step 5 Calculate National Income ( NNP FC )

NNP FC = NDP FC + NFIA

Example 1

Income earned by Indian Citizen in India 1000

Depreciation 300

Income earned by Foreign nationals in India 600

Income earned by Indian Nationals Outside India 800

Indirect Taxes 110

Subsidy 10

#### What Is Domestic Income and National Income?

GDP MP = Income Earned by Indian Citizens in India + Income earned by Foreign Citizens in India

GDP MP = 1000 + 600

GDP MP = 1600

Net Indirect Taxes = Indirect Taxes - Subsidy

Net Indirect Taxes = 110 - 10

Net Indirect Taxes = 100

GDP FC = GDP MP - Net Indirect Taxes

GDPFC = 1600 - 100

GDPFC = 1500

NDP FC = GDP FC - Depreciation

NDP FC = 1500 - 300

NDP FC = 1200

NFIA = Factor Income Earned from Abroad - Factor income Paid to Abroad

NFIA = 800 - 0

NFIA = 800

NNP FC = NDP FC + NFIA

NNP FC = 1200 + 800

NNP FC = 2000

#### Note

Depreciation is also called Consumption of Fixed Capital

## Question 1

Why is GDPFC more than NDP FC ?

## Question 2

If NDP FC is Rs1,000 crores and NFIA is - Rs 5 crores, how much will be the national income?

## Question 3

The net domestic product at market price of an economy is 4,500 crores.

The capital stock is worth Rs 4,000 crores and it depreciates at the rate of 10% per annum.

Indirect taxes amount to Rs 150 crores, subsidies amount to Rs 20 crores, factor income from the rest of the world is Rs 400 crores and to rest of the world is Rs 600 crores.

Find out the gross national product at factor cost.

## Question 4

Calculate National Income or NNPFC. (Rs in crores).

 GDP MP = 5500 Consumption of Fixed Capital = 300 GST = 120 Factor income from abroad = 150 Subsidies = 70 Factor income to abroad = 250

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