Net National Product and Net Domestic Income

Net national product (NNP): It is the market value of a nation's

goods and services minus depreciation (often referred to
as capital consumption).

(EXAMPLE):

The formula for NNP is:

NNP = Market Value of Finished Goods + Market Value of Finished

Services - Depreciation

Alternatively, NNP can be calculated as:

NNP=GNP-Depreciation
or, NNP=C+I+G+(X-M) +NFIA-Depreciation

Let's assume Country XYZ's companies, citizens and entities

produce Rs.1 trillion worth of goods and Rs.3 trillion worth of
services this year. The assets used to produce those goods and
services depreciated by Rs.500 billion. Using the formula above,
Country XYZ's NNP is:

NNP = Rs.1 trillion +Rs.3 trillion Rs.0.5 trillion = Rs.3.5 trillion

WHY IT MATTERS:
NNP is a measure of how much a country can consume in a given
period. Note that NNP measures output regardless of where that
production takes place

Net National Product at Factor Cost:

Net national product at factor cost is also called national income. If
we deduct depreciation allowances from the gross national product
at factor cost, we get net national product at factor cost.

NNP at Factor cost = GNP at Factor Cost-Depreciation allowance

In other words it is the sum of factor income excluding taxes.Net
national income is the sum of wages, rent, interest and profits paid to
factors for their contribution to the production of goods and services
in an year.

NNP at Factor cost =NNP at market price Indirect Taxes +Subsidies

or, NI=C+G+I+(X-M) +NFIA-Depreciation-Indirect Taxes +Subsidies

Net Domestic Product at Factor Cost:

Net domestic product at factor cost is also called net domestic
income. This is so because what is cost for the firms is income for
the factors.

Net Domestic Income at factor cost = Wages, Salaries, and

Supplementary Labor Income + Profits of Corporations and Govt.
Enterprises before taxes + Interest and Investment Income + Net
Income from Farms and Unincorporated Businesses + Taxes less
subsidies on factors of production

Net Domestic Product at factor cost (NDP at FC) is the income

earned by the factors in the form of wages, profits, rent, interest etc.
within the domestic territory of a country. Besides the above four
remuneration it also includes

(i) reserve fund or corporate saving of firms

(ii) corporation and other direct tax
(iii) mixed income of self- employed
(iv) profits from Govt, enterprises
(v) Property income of the Govt and
(vi) savings of non-departmental enterprises.

Net domestic product at market price:

It is the difference between net national product at market price and
net factor income from abroad. Net national product at market price
is Gross national product at market price minus depreciation.
Net domestic product at market price = Net national product at
market price - Net factor income from abroad.

Or

Net Domestic Income at market prices = Net Domestic Income at

factor cost + Indirect taxes - subsidies

Importance of Net national product:

The net national product has been the subject of research on its role
as a dynamic welfare indicator as well as a means of reconciling
forward and backward views on capital wherein NNP(t) corresponds
to the interest on accumulated capital. Furthermore, the net national
product has featured prominently as a measure in environmental
economics such as within models accounting for the depletion of
natural and environmental resources or as an indicator of
sustainability.