Hello friends, Welcome to PrepMate classes! In this lecture we will learn about the indicators
of economic activity namely Gross Domestic Product (GDP)
Gross National Product (GNP) Net Domestic Product (NDP)
Net National Product (NNP) And Per Capita Income. GDP or Gross Domestic Product is the money
value of all the finished goods and services produced within a country’s borders in a specific
time period. GDP is usually calculated annually or on quarterly
basis. Thus, if foreign companies such as Vodafone,
Ford and others are producing in India, the production is part of India’s GDP. This includes goods and services produced
by the residents of the country within the country’s borders and those produced by
foreign residents as well as companies by investing in that country. But what does GDP indicate and why are we
so concerned about it? GDP indicates economic health of a country
as well as the standard of living of the residents. More the GDP greater the production of goods
and services which in turn indicates higher consumption level of the residents. Increased consumption level is in turn associated
with a higher standard of living of the residents. Fall in GDP indicates reduced production of
goods and services which in turn indicates fall in the consumption level of the residents. Reduced consumption level is in turn associated
with a poor standard of living of the residents. GNP or Gross National Product refers to goods
and services produced by residents of a country within and outside its borders. We can calculate GNP from GDP by adding income
earned by Indians abroad and subtracting incomes earned by foreigners in India. Thus, if Indian companies such as Tata, Infosys
and others are producing outside of India, the production is part of India’s GNP. But it does not include goods and services
produced by foreign nationals within the country’s borders. In India’s case, value of GDP is higher
than that of GNP because India receives more investment from other countries than it makes
in them. NDP
Production of goods and services involves consumption or reduction in value of assets
used to produce goods and services. This consumption or reduction in value of
asset is called depreciation. Depreciation can occur in any asset that is
used for production; such as machinery, furniture and equipments. Whenever we calculate net value from gross
value, we subtract depreciation out of gross value. Therefore, Net Domestic Product or NDP is
calculated by subtracting depreciation from the Gross Domestic Product (GDP). Similarly, NNP is calculated by subtracting
depreciation from the GNP. All the indicators can be calculated either
at market price or factor cost. The factor cost refers to the cost of factors
of production that is incurred by a firm when producing goods and services. For example, to manufacture a car, factor
cost includes the rent of land and cost of setting up a manufacturing unit, the cost
of hiring labours and salaries of employees, rent of machinery, cost of obtaining raw materials
and the cost of funds used to manufacture the car. The market price is the price that the consumers
will pay for the product when they purchase it from the market. For instance, when you purchase a car from
the market then the market price includes the factor cost, we calculated earlier, and
also, indirect taxes. Thus, taxes charged by the government are
added to the factor cost. In this case, market price is higher than
the factor cost. In other cases factor cost can be higher than
the market price. For instance, to promote consumption of fertilizers
government gives large subsidies to farmers. Thus, for final market price subsidies are
subtracted from factor cost of fertilizers. Net National Product or National Income is
the collective income earned by nationals of a country in a given time period. How can we arrive at National Income from
GDP? GDP is usually calculated at market price. If we subtract depreciation from GDP at the
market price we arrive at NDP at the market price. Further from NDP, if we subtract factor income
earned by foreigners in India and add factor income earned by Indians abroad we arrive
at NNp at the market price. From the NNP if we subtract the indirect taxes
and add the subsidies given by government, we arrive at NNPFC i.e. Net National Product at factor cost or National
Income. When the national income of a country is divided
by the total population of that country we arrive at an average income known as Per Capita
Income. Per capita income is a better economic indicator
than GDP. There are instances when the rate of population
growth is higher than the rate of increase in GDP. In such a case, although GDP increases, the
standard of living of residents remains same or deteriorates. Per Capita income suffers from its own limitations. Let us assume a nation where 10% of the national
income is distributed between 90% of the population and 90% of the national income is cornered
by 10% of the elites. Here, the calculation of per capita income
will not display the economic disparity existing in the country. We hope you enjoyed this video. Thank you. For Best learning you can watch this video
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