GDP, GNP, NNP โ National Income Concepts Explained
GDP vs GNP vs NNP โ differences explained with simple examples. Factor cost vs market price. Real vs nominal GDP.
๐ In This Article
1. GDP โ Gross Domestic Product
GDP is the total monetary value of all goods and services produced within a country’s borders in a given year, regardless of who produces them.
๐ GDP Formula
๐ญ A Japanese car company (Toyota) making cars in India โ Counted in India’s GDP
๐ญ An Indian company (TCS) providing IT services in the USA โ NOT counted in India’s GDP (counted in USA’s GDP)
โข GDP at Market Price = includes indirect taxes, excludes subsidies
โข GDP at Factor Cost = excludes indirect taxes, includes subsidies
โข GDP at Factor Cost = GDP at Market Price โ Indirect Taxes + Subsidies
2. GNP โ Gross National Product
GNP is the total monetary value of all goods and services produced by a country’s residents (nationals) in a given year, regardless of where they are located.
๐ GNP Formula
๐ฏ๐ต A Japanese manager working in India earns โน10 lakh โ This income is subtracted from India’s GNP (but IS counted in India’s GDP)
If NFIA is positive โ GNP > GDP (India earns more from abroad than foreigners earn in India)
If NFIA is negative โ GNP < GDP
3. NNP โ Net National Product
NNP is GNP minus depreciation (wear and tear of capital goods). It represents the actual net addition to the economy’s wealth.
๐ NNP Formula
NNP is also called National Income at Market Price.
4. National Income (NI)
National Income = NNP at Factor Cost. It is the most commonly used measure of a country’s economic performance.
๐ National Income Formula
5. Real GDP vs Nominal GDP
| Feature | Nominal GDP | Real GDP |
|---|---|---|
| Definition | GDP measured at current year prices | GDP measured at base year prices (adjusted for inflation) |
| Inflation effect | Includes inflation effect | Removes inflation effect |
| Better measure? | No โ can be misleading | Yes โ shows actual growth |
| Example | If prices double but output stays same, nominal GDP doubles | Real GDP stays same โ shows no real growth |
In 2021, India produced 100 kg of rice at โน25/kg โ Nominal GDP = โน2,500
Nominal GDP grew by 25% โ but did India actually produce more? No! Output was the same (100 kg). The increase was only due to price rise (inflation).
Real GDP (at 2020 prices) = 100 kg ร โน20 = โน2,000 โ No real growth
6. All Formulas at a Glance
| Concept | Formula |
|---|---|
| GDP at Market Price | C + I + G + (X โ M) |
| GDP at Factor Cost | GDP at MP โ Indirect Taxes + Subsidies |
| GNP at Market Price | GDP at MP + NFIA |
| NNP at Market Price | GNP at MP โ Depreciation |
| National Income (NNP at FC) | NNP at MP โ Indirect Taxes + Subsidies |
| Per Capita Income | National Income รท Total Population |
| Real GDP | Nominal GDP รท GDP Deflator ร 100 |
| GDP Growth Rate | (Current Year GDP โ Previous Year GDP) รท Previous Year GDP ร 100 |
7. Key Points for Exam
๐ Must-Remember Facts
- GDP = Total value of goods/services produced within a country’s borders
- GNP = GDP + Net Factor Income from Abroad (NFIA)
- NNP = GNP โ Depreciation
- National Income = NNP at Factor Cost
- Real GDP removes inflation effect; Nominal GDP includes it
- GDP at Factor Cost = GDP at Market Price โ Indirect Taxes + Subsidies
- Per Capita Income = National Income รท Total Population
- India’s GDP is measured by Central Statistics Office (CSO) โ now NSO
- Base year for India’s GDP calculation: 2011โ12
- India is the 5th largest economy by nominal GDP
- India is the 3rd largest economy by PPP (Purchasing Power Parity)