Introductory Economics

Gross National Product

GNP AND NNP

A. Gross National Product at Market Prices (G.N.P.):

• Gross National Product at Market Prices is the total monetary value of all final goods and services at current prices produced in an economy in a year. We include the administrative services of the Government in G.N.P., although they do not command a market price but are paid for by the community as a whole by means of taxes, fees, etc.
• The services of charitable trusts and religious organizations are also paid by these organizations and therefore they are also included in the G.N.P. We also provide certain services out of love, friendship, kindness on the self-services, which are to be excluded from G.N.P, because they may command utility but not an economic value.

1. Gross National Product=Gross National Income=Gross National Expenditure
2. GNP=GNI=GNE
3. GNE=Total personal consumption expenditure Gross Domestic private investment expenditure + Govt. purchase of goods and services + net foreign investment
4. GNP=Total Money value of the aggregate output of goods and services produced by the nationals of a country during a given year
5. GNI=Wages and salaries of employees + incomes of non company business +rental incomes of persons +corporate profits +income from net interest +indirect taxes+ depreciation of capital goods.

• If the money value of the aggregate output of goods and services is measured with respect to the prices of some particular year other than the current one, it is known as G.N.P. at constant prices. So far as the measurement of Gross Domestic Product (GDP) is concerned, we exclude the expenditure on net foreign investment and hence.

GDP=GNP- Net Foreign investment
Net foreign investment=Export value-import value=(X-M)
GDP=GNP- (X-M)

B. Net National Product at Market Prices (NNP):

• Net National Product is the net production value of goods and services at current market prices in a country during a year. NNP is nothing but G.N.P minus the value of capital consumed or depreciated during a year. NNP is definitely a better concept of National income than GNP because it makes proper allowance for the depreciations suffered 'by machinery, buildings, equipment etc. during the course of production.

NNP=GNP- Depreciation
NDP=GDP- Depreciation

C. National Income at Factor Cost:

• National income at factor cost is also known as National Income. It is the total of all income payments received by the factors of production-land, labour capital, organization and entrepreneur. In fact the whole of the NNP is not available for distribution. The sum of indirect taxes goes to the Govt. Impact of indirect taxes is generally on the producers but the incidence of these taxes is borne by the consumers. Hence indirect taxes have to be deducted from the NNP in order to find out National Income. Today, we are living in the era of welfare states and in such type of states, the Govt. sometimes gives subsidies on the production of certain goods and services e.g. special concession on Khadi products for about a month from 2nd Oct. every year to commemorate Mahatma Gandhi. The production costs of these goods are higher but they are sold at cheaper rates on account of Govt. subsidies. The factors producing them are paid higher rewards on account of these subsidies. Naturally subsidies are to be added to so as to get national income at factor cost.

National Income at factor cost=NNP at Market prices- Indirect taxes + subsidies.

D. Personal Income:

• In fact, whole of the national income earned by the factors of production in a particular year is not actually received by them. Personal income is that income which is actually received by all individuals or households in an economy during a year. Several deductions are made out of the National. Income at factor cost e.g. joint stock companies have to pay a sort of income tax beyond a certain limit of income which is known as corporate tax- Naturally corporate taxes paid to the Govt. are not distributed among the shareholders. Workers and salaried employees have to make social security contributions out of their wages and salaries such as provident fund, Employees State Insurance contributions for medical aid etc. Govt. under the social welfare scheme also extends some benefits such as unemployment allowances, old age and widow pensions etc. These benefits are given against no productive work and are known as 'transfer, payment.' These are actually received by the individuals or households of a country and therefore should be added to NI at factor cost so as to get Personal Income.

Personal Income= National income at factor cost-Corporate income taxes- undistributed profits-social security contributions +transfer payments
This concept is a useful one since it tells us the potential purchasing power of an economy and measures the welfare of the general body of the consumers.

E. Disposable Income:

• The whole of the personal income is also not available for being spent on consumption. A part of the personal income has to be paid by individuals or households as direct taxes. If a person's annual income is beyond exemption limit of income tax, it is liable to be taxed and the income which is left after paying the income tax may be used for consumption. There are other types of direct personal taxes also e.g. house tax, wealth tax, gift tax etc.

DI=Personal Income-Direct personal taxes
=Disposable for consumption
=Consumption +Saving