GDP: Theory and Current

Formulas
Calculatio
n Methods
CSO
modificati
on
Survey
Data

GDP Definition

Market value
All final goods & services
Produced within country
For a given time period.

Gross
Domestic
Product

++
++
Tatas dividend
from UK

NA

GDP vs Inflation
1.Current price
2.Constant price
3.GDP deflator

Base year:
2011
Constant Price
Rs.1 Lakh / car

GDP: 3 lakh

Present year:
2015
Current Price
Rs.1.5 Lakh /
car

Nominal GDP: 3 lakh

Base year:
2011
Constant Price
Rs.1 Lakh / car

GDP: 3 lakh

Present year: 2015

Adjust with Base year
(Constant) Price
Rs.1.5 lakh 1 Lakh / car

Nominal GDP: 3
lakh
Real GDP: 2
lakh

Present year: 2015

Base year (constant) Price
Rs.1 Lakh / car

GDP
Deflato
r

Nominal GDP{c.y
unit x c.y market price}: 3
lakh
Real GDP{unit
produce in c.y x base year
may jo price thi of that

}: 2
GDP Deflator=150
lakh
unit=2 unit x 1 lakh

100

Gross
National
Product

++
MINUS

GNP = GDP + Net

Income from abroad
Netforeignfactor income(NFFI) is the
difference between the aggregate amount
that a country's citizens and companies
earnabroad, and the aggregate amount
that foreign citizens
andoverseascompanies earn in that
country.

Tatas dividend
from UK

++

Real vs Nominal GDP, GDP

deflator
GDP vs. GNP
NEXT: Factor Cost vs Market Price

Labor
Land
Capital
Entrepreneursh
ip

Factor Cost

Wage(W)
Rent(R)
Interest(I)
Profit(P)

Rs.1 Lakh

+ Taxes:
20k
- Subsidies:
5k
Market Price: 1.15
L

GDP

Market
Price
{un saare products
and service ki market
may pohochne ki
rate}

on the basis of
(+) GDP {GDP
Factors of production
@Factor cost}
Cost
Because goods and
services are sold in the
economy including
taxes

(+) Taxes
(-)
Subsidies

Because goods and

services are sold in the
economy after
deducting subsidy
support from govt
so that public can
afford it.

GNP = GDP + Net

Income from abroad

Gross
National
Product
@market
price

NNP
(MP)

(-)
Depreciation

Coz gross se net may jaana h

to depreciation ghatana
padta hai

TAX

SUBSIDY

COZ MP -> FC KI TARAF JARE HAI SO REVERSING

NET
National
Product@
(Market
Price)

NNP(FC)
=National
income
CAUSE HAKIKAT MAY TO
YAHI GENERATE HUA
H.

(+) GDP
@Factor
Cost
GDP

Market
Price

(+) Taxes
(-)
Subsidies

(+) NNP
@Factor
Cost
NNP

Market
Price

(+) Taxes
(-)
Subsidies

What is Net National Income? (1997)

A. Net Domestic Product at market

price
B. Net Domestic Product at factor
cost
C. NNP at market price
D.NNP at factor cost (right, NCERT
Class12, Macro, Page24)

1. Skip

2. Attempt

3. Mark n Review

Per capita National Income (Current Market Price)

88533

2014
2013
2012
2011

80388
71593
64316

GNP{MP
}

Depreciatio
n

NNP (MP)
D
A
RO

,
N
A
LO

A
R
G

O
D
,
T
N

A
T
N

N
O
I

M
O
R

AB Current

Transfer

National
Disposabl
e

Class 12 macro-economics
Chapter 2
+ glossary / appendix

Self Study
NCERT

So far
Formulas
Calculatio
n Methods
CSO
modificati
on
Survey
Data

Income
GDP

Calculation

3 methods

Expenditure
Production
(GVA)

Method #1: Income

Factor
Labor
Capital
Entreprene
ur
Land/Buildi
ng

Income
Wages
Interest
Profit
Rent
Total= GDP

GDP
Constant
@ market
prices
Inflation
adjust

GDP @Current
Market Price

Income Method (WIPR)

W+I+P+R = GDP @Factor Cost.
Wages, interest, profit, rent

Expenditure

Production: Gross Value Added (GVA)

Consumption
Private
Investment
Government
Foreign
Expenditure

1.
2.
3.
4.

Not in intermediate goods

Steel, Rubber.no
Final Car..yes
Existing houseyes
(calculated as owner paying
rent to himself)
5. New house purchase.NO

Expenditur
e
Private
final

1. New house purchase yes.

2. purchase of goods used in future
production
3. Leftover Inventory.yes [Rubber
steel, car]
4. Capital goods.Yes
5. Heavy Machinery.Yes
6. Building, Structure.Yes
7. Share, Bond, Debenture.its
Expenditure utilized above things

Expenditur
e
Investment

Consumption
Private
Investment
Government
Foreign
Expenditure

1. Salary to employees.Yes
2. FCI grain purchase = yes
3. Food coupon, LPG-DBT = no.
That money gets counted in
Private consumption.
4. Transfer Payments..No
[DBT, Pension, Scholarship,
food coupons etc.]

Expenditur
Governme
e
nt
Purchase

Consumption
Private
Investment
Government
Foreign
Expenditure

GDP bottom line: Domestically Produced

Money earned
from EXPORT
(+++)
Domestically
produced car

Domestically produced goods/services

Foreign car
import
Not our
Domestically
produced car
Therefore Import
(- - - MINUS)

Private
Final
Expenditure
(+++)

GDP= C + I + G + (X M)

+Consumption (Final)
+Investment
+Government
Purchase
Foreign Expenditure
(Export-Import)

GDP Calculation: THREE Methods

Income Method (WIPR0)
W+I+P+R
Wages, interest, profit, rent

Expenditure
C + I + G + (X M)
Consumption, investment, Govt. purchase, Net export

Production: Gross Value Added (GVA)

Intermed
iate
Goods
Labor
Capit
al
Entre
p.
Land
Value

00
Wage(W)
Interest(I)
Profit(P)
Rent(R)
Rs.1 Lakh

Rs.1 Lakh

Rs.5 Lakh

Wage(W) Wage(W)
Interest(I) Interest(I)
Profit(P)
Profit(P)
Rent(R)
Rent(R)
5 Lakh
10 Lakh
GDP
4 Lakh
5 Lakh 10 lakh

SALE
Value
Cost
Interm
ed.
Goods

Rs.1 Lakh

5 Lakh

10 Lakh

00

1 lakh

5 lakh

GDP
Factor

Gross
Value

16
Lakh
6
lakh
16-6
=10

GDP @FACTOR COST

GDP Market Price

GDP Calculation: THREE Methods

Income Method (WIPR0)
W+I+P+R
Wages, interest, profit, rent

Expenditure
C + I + G + (X M)
Consumption, investment, Govt. purchase, Net export

Production: Gross Value Added (GVA)

Total Value of Sale Cost of intermediate goods

GDP doesnt cover following:

Underground
Economy

Non-Marketed
Activities

Barter
Exchanges

-ve Externality

Opportunity
cost

Income
Inequality

H.D.I

GiniCoefficient
In future Economic
survey lectures on

So far
Formulas
Calculatio
n Methods
CSO
modificati
on
Survey
Data

CSO calculating since 1955

Manufacturin
g
Power
Gas-Water

T
er
ti
ar
y

c
o
n
d
ar
y

Agriculture
Forestry
Fishing
Mining

Transport
Communicati
on
Trade
Banking
Insurance
Computer
Public
Administratio
n
Defense

Pr
i
m
ar
y

CSO utilizes data from following

S
er
vi
c
e
s

ASI
IIP
Economic
census
NSSO
Surveys

CBDT
CBEC
CPI-Indexes

G
o
o
d
s

Until now CSO GDP Calculation: FACTOR COST

Income Method (WIPR0)

W+I+P+R
Wages, interest, profit, rent

Expenditure
C + I + G + (X M)
Consumption, investment, Govt. purchase, Net export

Production: Gross Value Added (GVA)

Total Value of Sale Cost of intermediate goods