GDP Concept

GDP (Gross Domestic Product)

Ø  Total market value of all the final goods and services produced in a specific time period, often annually

GNI (Gross National Income) –

GDP at market price

+

Tax less subsidies on product & import (Net receivable from abroad)

+

Compensation of employees (Net receivable from abroad)

+

Property income (Net receivable from abroad)

GNP (Gross National Product) –

GDP

+

Total Capital gain from overseas investment

-

Income gain by foreign nationals domestically

GNP = GDP + NP (Net income from assets abroad (Net Income Receipts))

# According to National Income Accounting, there are three ways to compute GDP

1.       Expenditure wise

2.       Income wise

3.       Product wise

1. Expenditure Wise -

GDP = 

Consumption

(Food, household, medical expenses, rent etc.)

 + 

Gross Investment

 +

 Govt. Spending 

(Sum of Govt. expenditure on final goods & services)

+

 (Export – Import)

i.e GDP = C + I + G + (X-M)

2. Income Approach –

GDP =

Compensation of employee

(Wages, salary & other employ supplement)

+

Property income

(Corporate profit, Proprietor’s incomes, interest and rents)

+

Production taxes and depreciation on capital

GDP at market price

Ø  Value of output at market prices after adjusting for the effect of indirect taxes and subsidies on the price.

Market price

Ø  The economic price for which a good or service is offered in the market place.

GDP at factor cost

Ø  The value of output in terms of the prices of factors used in its production.

GDP at factor cost = GDP at market prices – (indirect tax – subsidies)

3. Product Approach 

# Real GDP or GDP at constant price – 

Ø  Value of today’s output at yesterday price 

# Nominal GDP or GDP at current price –

Ø  Value of today’s output at today’s price