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DEFINITION
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 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. 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.
SECONDARY SECTOR consisting of: Mining Manufacturing Construction Gas and Water Supply
Trade Transport Storage Communications Banking Insurance Real Estate Community & Personal Services
CALCULATING GDP
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
(1) Personal consumption expenditure ( C ) (2) Gross private domestic investment ( I ) (3) Government purchases (4) Net exports (G) (X )
The expenditure approach calculates GDP by adding together four components of expenditure
GDP = C + I + G + X
Expenditure for new houses, apartment buildings Expenditure by firms for machines, tools, plants Goods that firms produce now but sell later
Net exports are total exports minus total imports. It can be positive or negative
The income approach to calculating GDP looks at GDP in terms of who receives it as income and not who purchases it.
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
GDP is then arrived at, by adding together these four components of the earnings. In equation form :
GDP = N + D + T + F
1) National income
(2) Depreciation
Since national income includes corporate profits after the depreciation has been deducted, so depreciation must be added back
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
Net exports are total exports minus total imports. It can be positive or negative
Performance of an economy
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.
Inter-sectoral comparisons
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. 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. 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.
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. 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.
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.