GDP at factor cost is the sum of net value added by all producers within the country. Net indirect tax is calculated by deducting subsidy from the indirect tax. For this purpose the following formula is employed. Notify me of follow-up comments by email. But, Inviul is my soul and I feel more connected to Selenium and Technologies. There are three different ways to measure GDP: Product Method, Income Method and Expenditure Method. GDP deflator is an index of price changes of goods and services included in GDP. In this report, it mentioned all the economic activities that added value to the income of the nation. Second, by studying the national income accounts relating to value added, the contribution of each production sector to the value of the GNP can be found out. In order to protect such producers, the government helps them by granting monetary help in the form of a subsidy equal to the difference between the market price and the cost of production of the commodity. ANSWER: b. NNP at market price NNP at market price is calculated by deducting indirect taxes and subsidies from NNP at factor cost. QUESTION 5: While calculating GNP, income generated by foreigners in a country is taken into consideration. The formula to calculate the components of GNP is Y = C + I + G + X + Z . In case of India, Trade balance is negative since it imports most of the stuffs than export. It includes all types of expenditure on personal consumption by the individuals of a country. In calculating GNP, the money value of final goods and services produced at current prices during a year is taken into account. In particular, the increase or decrease in the inventory is added to or subtracted from it. TOS4. This website includes study notes, research papers, essays, articles and other allied information submitted by visitors like YOU. The whole of the personal income cannot be spent on consumption, because it is the income that accrues before direct taxes have actually been paid. and the estimated rents of all such assets as are used by the owners themselves. Thus Personal income = Private Income-Undistributed Corporate Profits-Profit Taxes. GNP at market prices always includes indirect taxes levied by the government on goods which raise their prices. Disclaimer Copyright, Share Your Knowledge NNP at MP – Indirect Taxes = Net National Income at Factor Cost. ANSWER: c. both National Income is the monetary value of all final goods and services that are produced by the residents of the country. GNP at factor cost can also be calculated in another method. It is also called National Income. Per capita income = National Income/Total Population. Per Capita Income is derived by dividing the total National Income of … The prices are set to 100 (or 1) in the base year. ANSWER: b. ii only While calculating GNP, income generated by foreigners in a country is not taken into consideration. It rather depends on the rate of population growth. Total rent includes the rents of land, shop, house, factory, etc. Personal income is never equal to the national income, because the former includes the transfer payments whereas they are not included in national income. The sale and purchase of old goods; and of shares, bonds and assets of existing companies are not included in GNP because these do not make any addition to the national product, and the goods are simply transferred. ANSWER: a. I only While calculating GDP, income generated by nationals of a country outside the country is not taken into account. © Copyright 2016. He loves to write blogs, and apart from blogging, he is interested in documentary film making, listening to music, traveling around the world and philanthropic activities. All this process is termed depreciation or capital consumption allowance. Thus the difference between domestic income and national income is the net income earned from abroad. When such net earnings are adding to the Net Domestic Product (NDP), we have the Net National Product (NNP). Disposable income or personal disposable income means the actual income which can be spent on consumption by individuals and families. GNP at Factor Cost = GNP at Market Prices-Indirect Taxes + Subsidies. Net National Product is the difference between Gross national product and Depreciation. But business and government transfer payments, and transfer payments from abroad in the form of gifts and remittances, windfall gains, and interest on public debt which are a source of income for individuals are added to national income. GDP is the total value of goods and services produced within the country during a year. Thus Net Domestic Product = GDP at Factor Cost – Depreciation. Now that general level of prices of the given year for which the national income (real) is to be determined is assessed in accordance with the prices of the base year. Privacy Policy3. are sold as inputs by one industry to the other. Therefore, the income due to such taxes is added to the GNP. GNP always lower than GDP ( India). But in this manner, due to an increase or decrease in the prices, the GNP shows a rise or decline, which may not be real. Three approaches are employed for this purpose. (i) Compensation of Employees i.e., wages, salaries, etc. National income is the value of goods and services produced as expressed in terms of money at current prices. One, the income method to GNP; two, the expenditure method to GNP; and three, the value added method to GNP Since gross income equals gross expenditure, GNP estimated by all these methods would be the same with appropriate adjustments. This is also known as the Value Added Method to GDP or GDI at Factor Cost by Industry of Origin. Therefore, the disposable income is divided into consumption expenditure and saving. Thus Private Income= National Income (or NNP at Factor Cost) +Transfer Payments+ Interest on Public Debt-Social Security-Profits and Surpluses of Public Undertakings. Thus Disposable Income=National Income-Business Savings-Indirect Taxes plus Subsidies-Direct Taxes on Persons-Direct Taxes on Business-Social Security Payments+ Transfer Payments + Net Income from Abroad. Thus, GDP at Factor Cost = GDP at Market Price – Indirect Taxes + Subsidies. Thus Disposable Income = Consumption Expenditure+ Savings. It includes all sums received or deposited during a year by way of all types of contributions like overtime, commission, provident fund, insurance, etc. When GDP is measured on the basis of current prices, it is called GDP at current prices or nominal GDP. But the process of production uses up a certain amount of fixed capital. To this is added, the estimated interest on that private capital which is invested and not borrowed by the businessman in his personal business. GNP at Market Prices = GDP at Market Prices + Net Income Earned from Abroad. But the whole of the disposable income is not spent on consumption and a part of it is saved. To run the offices, the governments have also to spend on contingencies which include paper, pen, pencil and various types of stationery, cloth, furniture, cars, etc. Which cannot be estimated accurately in money terms? Thus NNP= GNP-Depreciation. Thus GNP at market prices means the gross value of final goods and services produced annually in a country plus net income from abroad. It does not take into account the financial exchange of shares and stocks because their sale and purchase is not real investment. This is because the factor cost (payments to factors) of producing goods must equal the final value of goods and services at market prices.

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