Upload
nickrockstar23
View
6
Download
1
Tags:
Embed Size (px)
Citation preview
GROSS DOMESTIC PRODUCT (GDP )
DEFINITION
2. Gross Domestic Product at Factor Prices.
Gross Domestic Product at Factor Costs can be defined as “ the aggregate of factor incomes earned by factors of production owned by residents some of which may be located abroad.”
The Gross Domestic of a country can be defined/calculated in two ways;
1. Gross Domestic Product at Market Prices Gross Domestic Product at Market Prices can be defined as “ the total
value at market prices of outputs of all goods and services during a specified period, usually a year”
Net National Product (NNP)
Net National Product is the value of net output in an economy during the period of one year . It is the net value of final goods and services which are produced during the period of one year . To calculate the net national product , we deduct depreciation from the Gross National Product. Net National Product is also called National Income.
The Indian Economy is divided into 13 sectors classified under three
broad headings as under
AgricultureForestryFishery
PRIMARY SECTOR consisting of :
SECONDARY SECTOR
consisting of:
MiningManufacturingConstructionGas and Water Supply
TradeTransportStorageCommunicationsBankingInsuranceReal EstateCommunity & Personal Services
TERTIARY SECTOR
consisting of :
COMPONENTS OF INDIA’S GDP
CALCULATING GDP
The expenditure approach The income approach
Adding up the amount spent on all final goods & services during a given period
Adding up the income i.e. wages, rents, interest and profit received by all factors of production in producing final goods
The expenditure approach
The expenditure approach calculates GDP by adding together four components of expenditure
Constituent groups in an economy
--Households --Firms --Government --Rest of the world
Correspondingly there are four categories of expenditure
(1) Personal consumption expenditure ( C )
(2) Gross private domestic investment ( I )
(3) Government purchases ( G )
(4) Net exports (X )
GDP = C + I + G + X
1) Personal consumption expenditure
(2) Gross private domestic investment
(3) Government purchases
(4) Net exports
… non durable goods … durable goods … services
Residential
Non- Residential
Expenditure for new houses, apartment buildings
Expenditure by firms for machines, tools, plants
Business inventories
Goods that firms produce now but sell later
Purchases of newly produced goods & services by Central/State/Local governments
Wages & salaries of government workers
Net exports are total exports minus total imports. It can be positive or negative
The income approach
GDP is then arrived at, by adding together these four components of the earnings.
In equation form :
The income approach to calculating GDP looks at GDP in terms of who receives it as income and not who purchases it.
(1) National income ( N )
(2) Depreciation ( D )
(3) Indirect taxes minus subsidies ( T )
(4) Net factor payments to the rest of the world (F )
GDP = N + D + T + F
The income approach breaks down GDP into four components, namely :
1) National income
(2) Depreciation
(3) Indirect taxes minus subsidies
(4) Net factor payments to the rest of the world
… Compensation of employees … Proprietor’s income … Corporate … Net interest … Rental incomeSince national income includes corporate profits
after the depreciation has been deducted, so depreciation must be added back
Net exports are total exports minus total imports. It can be positive or negative
Income earned by factors of production
In calculating the final sales on the expenditure side, indirect taxes such as sales tax, custom duty, and license are included. Because these taxes are counted on the expenditure side, they most be added on the income side
SIGNIFICANCE OF GDP AND NNP TO GROWTH
GDP indicates the performance of an economy during one year and over the period of many years and thus helps in calculation of the actual rate of economic growth.
Performance of an economy
NNP They tells us about the economic welfare enjoyed by the people.. We can know the per capita income by dividing the by the population This data indicates the level of consumption of various goods and services . a higher per capita income means a higher level of consumption and people enjoy more economic welfare.
Economic welfare enjoyed by the people. Comparisons between economies
GDP of different countries helps in comparisons between various economies of the world and helps in understand the changes taking place in the various economies.
Within an economy, inter-sectoral comparisons can be made with the help of these statistics. If we can analyse the national income sector wise, we can know the share of the different sectors like agriculture manufacturing and services.
Inter-sectoral comparisons
When economic plans are prepared, for the allocation of resources and for mobilization of resources it is necessary to know about the GDP and NNP. With the help of this data, we can know about the rate of consumption savings and investment. With the help of this data it we can fix the targets of production consumption, investment, employment, etc.
Help in economic planning.
National Income account reflects structural changes in the economy. Changes in the composition of National Income are bound to create structural changes in a growing economy.
Reflects structural changes in the economy
National income estimates over a period of many years enable us to evaluate the planning. They provide important data on per capita income, per capita consumption , rate of growth of domestic savings, capital formation , the contribution to various sectors of the economic development . An upward trend in all these indicates the success of planning.
Help in evaluation of plans
National income estimates are also important in the formation of the budget. The amount of taxation and the money that can be got from the public is to be determined keeping in view the national income figures . Public expenditure is to be adjusted keeping in view the per capita income or changes in per capita income.
Important for formulation of budget
9) They also indicate how the income or wealth is distributed among the various classes . Thus we can know whether national income is equally distributed or not. National income estimates on the distribution of income by size reveal the production of income by various income groups and provide a basis for the study of income distribution . a dy of income distribution . a ies of such data indicates the changes in income distribution.
Indicates income & wealth distribution among classes
GDP AT FACTOR COST
YEAR GDP(RS.CRORES)
1950-51 1,47,477
1960-61 2,06,121
1970-71 2,96,903
1980-81 4,01,162
1990-91 6,93,051
2003-04 25,19,785