National Income – GDP, GNP, NNP, NDP

National Income – GDP, GNP, NNP, NDP

National income refers to the total monetary value of all goods and services produced within a country over a specific period, usually a year. It’s a key indicator of economic performance, helping economists and policymakers assess economic health, productivity, and standard of living.

Key Concepts of National Income

1. Gross Domestic Product (GDP)

GDP measures the total value of all final goods and services produced within a country’s borders in a year.

• It includes income earned by foreigners working within the country.
• It excludes income earned by citizens working abroad.

Example:

A Japanese company producing cars in India contributes to India’s GDP, not Japan’s.

Types of GDP

• Nominal GDP – Calculated at current prices.
• Real GDP – Calculated at constant prices (adjusted for inflation).

2. Gross National Product (GNP)

GNP measures the total value of goods and services produced by a country’s citizens, whether inside or outside the country.

Formula

GNP=GDP+Net Factor Income from Abroad

GNP = GDP + Net Factor Income from Abroad

• Net Factor Income from Abroad = Income earned by citizens abroad minus income earned by foreigners domestically.

Example:

If an Indian engineer works in Germany, his income adds to India’s GNP, not Germany’s.

3. Net Domestic Product (NDP)

NDP adjusts GDP by subtracting depreciation – the wear and tear of capital goods.

Formula

NDP=GDP−DepreciationNDP = GDP – Depreciation

• Reflects the net productive capacity of the economy.

4. Net National Product (NNP)

NNP adjusts GNP by subtracting depreciation, representing the net output produced by citizens after accounting for capital consumption.

Formula

NNP=GNP−Depreciation

NNP = GNP – Depreciation

Example:

If India’s GNP is ₹300 lakh crore and depreciation is ₹30 lakh crore, NNP = ₹270 lakh crore.

Which is National Income?

• Technically, NNP at Factor Cost is considered National Income.
• It reflects the actual income earned by citizens after adjusting for depreciation and indirect taxes/subsidies.

Practical Examples

• When India’s GDP growth rate is announced, it shows the domestic economic activity.
• When remittances from NRIs rise, India’s GNP increases.
• If old machines in a factory wear out, the loss is depreciation, reducing NDP and NNP.

Statement-based MCQs

MCQ 1
Consider the following statements:

1. GDP includes the value of all final goods and services produced within a country’s borders.
2. GNP excludes income earned by foreigners within the domestic economy.
3. Depreciation is subtracted from NDP to calculate GDP.

Which of the statements given above is/are correct?
a) 1 only
b) 1 and 2 only
c) 1 and 3 only
d) 1, 2 and 3

MCQ 2
Which of the following components is included in the calculation of Gross National Product (GNP)?

1. Income earned by Indian citizens working abroad
2. Income earned by foreign companies operating in India
3. Income earned by Indian companies operating abroad

Select the correct answer using the code given below:
a) 1 only
b) 1 and 3 only
c) 2 and 3 only
d) 1, 2 and 3

MCQ 3
Consider the following statements regarding NDP:

1. NDP is always higher than GDP.
2. NDP accounts for capital depreciation.
3. NDP reflects the net production within the economy.

Which of the statements given above is/are correct?
a) 1 only
b) 2 and 3 only
c) 1 and 3 only
d) 1, 2 and 3

MCQ 4
Which of the following best defines National Income?
a) GDP at market prices
b) NNP at market prices
c) NNP at factor cost
d) GNP at factor cost

MCQ 5
Which of the following would increase India’s Gross National Product (GNP), but not its Gross Domestic Product (GDP)?
a) Expansion of an Indian IT firm in Bengaluru
b) Increased remittances from Indians working in the UAE
c) New factory set up by a Japanese company in Pune
d) Government investment in infrastructure projects in India