National income Or Gross Domestic Product (GDP) is a subject matter of macroeconomics. GDP is a widely used yardstick to judge the country’s pace of Economic growth and development
In simple terms, National income Or Gross domestic product (GDP) is a measuring tools of country’s economic growth for a specific period of time. Definitely, GDP is a yardstick to judge or determine whether the given economy is growing or shrinking compare to previous fiscal year.
Meaning or definition of national income Or Gross domestic product (GDP)
For layman’s terms, GDP is a monetary value of final goods and services produced within the country in a year. It means that goods and services produced outside of the nation are not considered; nor taken account value of last year. Preciously, there are three components need to be taken account to reach at the final definition.
1.Monetary value of final goods and services
In order to calculate national income Or Gross domestic product (GDP), monetary value is calculated not quantity of production of goods and services.
2.Produced within a country
In terms of calculating GDP, the income of nationals or national citizens will not be adjusted as it is part of Gross national product. The production that comes within political boundary is a part of Gross domestic product (GDP)
3.Time duration should be one year
One year time base is used to calculate the productive activities of goods and services. It helps to judge the country’s overall growth rate of economy.
Difference between Real Gross domestic product (GDP) Vs nominal GDP
Nominal GDP doesn’t consider the prices rise of inputs or growth rate of population in the same period of time. Just taking account of the value of goods and services is enough to calculate nominal but not real GDP.
What is mean by real Gross domestic product (GDP)
For real GDP, it should be adjusted with the prices rise or inflation and growth in population in the same period of time.
Actually, it is highly essential to know whether the rise in the growth is actual or just because of rise in the prices of inputs or factors of production. If it is adjusted with the prices rise, it is called real GDP.
Second, growth in GDP has strong bearing on the per Capita income. But, it happens when the population is constant. In case of growth in population, there will not be any growth in the per Capita income of population.
Hence, it is necessary to adjust the GDP growth against inflation and growth in population to reach whether the given growth is real or nominal GDP.
History of Calculating Gross domestic product or (GDP)
There are three ways to calculate GDP in the world economies. These are production, expenditure, and income approaches.
First, total sales minus the value of intermediate inputs like energy, raw materials, semi finished goods and services that are purchased from all sources and used for final productions. This is called production approach.
Second, how much purchases are made by final users, and its sum is termed as expenditure approach. Third, the sum of the income generated by production is known as income approach.
History of calculating national income in India
Calculating national income is a vital a tool to determine the economic status of any nation. In India, the first attempt in pre independence era was made by Dadabhai Naoroji in 1868. He estimated per capita income of then indians was 20 rupees.
After independence, in 1949, Government of India made first attempt by establishing national income committee (NIC). It was established for the regular compilation income estimate. At the present, central statistics organization (CSO) compiles and publishes data on national income and related things on regular basis.
Understanding Formula of calculating Gross domestic product or GDP
Just look at the following components by which national agencies across the world calculate the national income Or Gross domestic product (GDP)
1.Private consumption — C
2.Gross private investment– I
3.Government investment — G
4.Government spending — G
5.Export-import — X-M
So, GDP = C+I+G+X-M is the formula for GDP calculation.
Difference between Gross domestic product and Gross national product (GDP Vs GNP)
So far, I have explained what does GDP mean and how Gross domestic product is calculated by the respective national agencies.
Now, in terms of difference, simply put, Gross national product doesn’t consider the value of income generated by the nationals or national citizens. Whereas, gross national product does consider the value of income generated by the nationals or national citizens.
In GNP, it is necessary to substract the income generated by foreign nationals and addition of income generated by own nationals.
Explaining difference between Net national product and environmental GDP
Actually, When depreciation that is wear and tear occurred during production is deduced or adjusted to the gross national product, it is called Net national product or NNP.
On the other hand, after substracting environmental wear and tear or loss happened due to productive activities from the net value of production is termed as environmental GDP or green GDP.
Solved questions on national income Or Gross domestic product (GDP)
For more clarity about Gross domestic product or GDP, here are some useful solved questions.
Q. 1. What is mean by Gross domestic product (GDP)?
Ans: GDP is a measure of country’s economic growth rate. Preciously, GDP is the value of goods and services produced within a country in a year.
It takes account monetary value of goods and services, time, and political entity as nation. In addition, GDP is different from GNP and NNP.
Q.2. What is the difference between Gross domestic product and GNP (Gross national product)?
Ans: Gross domestic product considers value of goods and services within country. It doesn’t consider nationals income. But, in GNP or Gross national product, nationals means citizens working outside is added. And income of foreigners income is deducted.
Q. 3. What does NNP or net national income mean?
Ans: If you deduct depreciation of capital goods and others from Gross national income or GNP, it is called net national income.
This is all about the concept clarity of GDP, GNP, NNP, and environmental GDP or green GDP. These are key terms students need clarity and simplification. Hope, they will get most of this article.
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