National Income
Gross National Product (GNP)
Gross National Product (GNP) is the value of all final goods and services produced by
domestically owned factors of production within a given period.
GNP is the value of final goods and services produced. The insistence on final is simply to
make sure that we do not double count.
GNP consists of the value of output currently produced. It thus excludes transaction in
commodities which are already in existence
GNP values goods at market prices. The market price includes indirect taxes, such as sales
tax, excise tax etc. (Market price- taxes= factor cost)
Net National Product or National Income
Net National Product (NNP) is defined as GNP less depreciation
NNP = GNP – Depreciation
Depreciation is that part of total productive assets which is used to replace the capital worn
–out in the process of creating national output
The net output gives the measure of net output available for consumption by the society
Since the NNP is the measure of the market value of all goods and services minus
depreciation, it is also called National Income at Market Prices
Gross Domestic Product (GDP)
Gross Domestic Product (GDP) is the value of final goods produced within the country
The difference between GNP and GDP:- Part of GNP is earned abroad, e.g. income of Indians
working abroad is part of GNP but not GDP
But on the other hand income of a foreign national working in India is part of Indian GDP but
not Indian GNP, because it is earned in India. It is part of GNP of that country
GDP at Market Price
GDP at market price refers to the total value of goods and services, produced inside the
country in a given year.
GDPmp = C + I + G + (X – M)
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C - Consumption
I - Investment or capital goods
G – Government Expenditure
X- Exports
M- Imports
National Income at Current Prices
When goods and services produced in a given year are multiplied with their current market
prices, we get national income at current prices.
The value of national income at current prices changes according to the changes in prices
When we measure, national income at current prices, what we get is the nominal national
income
Thus during a period of price rise, the nominal national Income would rise even when the
physical quantity of output produced remains constant
National Income at Constant Prices
National Income at Constant Prices or the Real National Income measures changes in
Physical output in the economy between different time periods by valuing all goods
produced in the two periods at the same prices or constant prices.
In order to find out the real rise in national income, the physical quantity of output should
be multiplied with constant prices or base year prices.
This process is called deflating the national income figures for the change in prices that have
taken place during a period.
The Consumer Price Index (CPI)
The Consumer Price Index (CPI) compares the total money that is required to purchase a
given basket of consumption goods and services, over a period of time, in percentage terms.
The basket represents the actual consumption pattern of a typical family from a specific
group, for which CPI is being constructed. Some such groupings are urban industrial workers,
agricultural labourers, urban non-manual employees etc.
In order to construct the index for a given year with reference to a base year, the following
information is required
1. Consumption basket in the base year
2. Prices of the items in the basket in the base year
3. Respective prices for each item in the given year
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Wholesale Price Index (WPI)
The construction method of the Wholesale Price Index (WPI) is similar to that of CPI. But
there are some differences, they are as follows
1. The items included in WPI are different from that of the CPI. The WPI includes items like
industrial raw materials, semi finished goods, minerals, fertilizers, machinery, equipment
etc. in addition to items from food, fuel, and power
2. The WPI can be considered as an index of prices paid by producers for their inputs.
3. Prices are whole sale prices
4. Weights are based on the value of transaction in the various items in the base year.
5. The main groups of items are:
6. Primary Articles:- food grains like rice, wheat, non food items like raw cotton, jute, minerals
like iron ore, manganese ore. (in all there are 80 primary articles)
7. Manufactured articles- 270 items
8. Fuel, power, lubricants- 10 items
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