NATIONAL INCOME


1.1              Gross National Product (GNP) 

Gross National Product (GNP) is a measure of the market value of all final economic goods and services, gross of depreciation, produced within the domestic territory   of a country by normal residents during an accounting year including net factor incomes from abroad. Gross National Product (GNP) is evaluated at market prices and therefore it is in fact Gross National Product at market prices (GNP MP).
NFIA is the difference between the aggregate amount 

that a country's citizens and companies earn abroad, and

 the aggregate amount that foreign citizens and overseas 

companies earn in that country.
If Net Factor Income from Abroad is positive, then GNP MP would be greater than GDP MP.
           GNP MP = GDP MP + Net Factor Income from Abroad

            GDP MP = GNP MP – Net Factor Income from Abroad
NFIA is the difference between the aggregate amount 

that a country's citizens and companies earn abroad, 

and the aggregate amount that foreign citizens and 

overseas companies earn in that country.
If Net Factor Income from Abroad is positive, then GNP MP would be greater than GDP MP.

You might have noticed that the distinction between ‘national’ and ‘domestic’ is   net factor income from abroad.
The   two   concepts   GDP   and   GNP   differ   in

   their   treatment   of international
transactions. The term ‘national’ refers to normal residents of a country who may   be within or outside the domestic territory of a country and is a broader concept compared to the term ‘domestic’. For example, GNP includes earnings of Indian corporations overseas and Indian residents working overseas; but GDP does not include these. In other words, GDP excludes net factor income from abroad. Conversely, GDP includes earnings from current production in India that accrue to foreign residents or foreign-owned firms; GNP excludes those items. For instance, profits earned in India by X Company, a foreign-owned firm, would be included in GDP but not in GNP. Similarly, profits earned by Company Y, an Indian company in UK would be excluded from GDP, but included in GNP.


1.1              Net Domestic Product at market prices (NDP MP)



Net domestic
product at market prices (NDP MP) is a  measure of the market value  of all final economic goods and services, produced within the domestic territory of  a country by its normal residents and non residents during an accounting year less depreciation. The portion of the capital stock used up in the process of production or depreciation must be subtracted from final sales because  depreciation represents capital consumption and therefore a cost of production.
         NDP MP = GDP MP – Depreciation
NDP MP = NNP MP – Net Factor Income from Abroad

As you are aware, the basis of distinction between ‘gross

’ and ‘net’ is depreciation or consumption of fixed 

capital.


           
Net National Product at Market Prices (NNP MP)

Net National Product at Market Prices (NNP MP) is a measure of the market value of all final economic goods and services, produced by normal residents within the domestic territory of a country including Net Factor Income from Abroad during an accounting year excluding depreciation.
NNP MP = GNP MP – Depreciation
NNP MP = NDP MP + Net Factor Income from Abroad
NNP MP = GDP MP + Net Factor Income from Abroad – Depreciation

                     Gross Domestic Product at Factor Cost (GDPFC)

The production and income approach (which we will discuss later in this unit) measure the domestic product as the cost paid to the factors of production. Therefore, it is known as ‘domestic product at factor cost’. GDP at factor cost is called so because it represents the total cost of factors viz. labor, capital and entrepreneurship.
At this stage, we need to clearly understand the difference between the concepts: ‘market price’ and ‘factor cost.’ In addition to factor cost, the market value of the goods and services will include indirect taxes which are:
* product taxes like excise duties, customs, sales tax, service tax etc., levied by  the government on goods and services, and
taxes on production, such as, factory license fee, taxes to be paid to the local authorities, pollution tax etc. which are unrelated to the quantum of  production.
You might have noticed that the government 
gives subsidy to many goods and services. The
 market price will be lower by the  amount of 
subsidies  on products and production which 
the government pays to the producer. Hence
, the market value of final expenditure would 
exceed the total obtained at factor cost by the 
amount of product and production taxes
 reduced by the value of similar kinds of 
subsidies. Direct taxes do not have the same 
effect since they do not  impinge directly on 
transactions but are levied directly on the 
incomes. For example if the factor cost of
unit of good X is ` 50/, indirect taxes amount 
to ` 15/per unit and the government gives a 
subsidy of ` 10/per unit, then market price 
will be ` 55/-
Thus, we find that the basis of distinction 
between market price and factor cost is net 
indirect taxes (i.e., Indirect taxes - Subsidies)

Market Price = Factor Cost + Net Indirect Taxes
= Factor Cost + Indirect Taxes – Subsidies

Factor Cost = Market Price - Net Indirect Taxes
= Market Price - Indirect Taxes + Subsidies

Gross Domestic Product at Factor Cost (GDPFC)
= GDP MP – Indirect Taxes + Subsidies
= Compensation of employees
+ Operating Surplus (rent + interest+ profit)

+ Mixed Income of Self- employed
+ Depreciation

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