2. Contents
• Concept of National Income
• GDP
• GNP
• Real Vs Nominal GNP
• NNP
• NI
• Saving Consumption
3. Gross Domestic Production (GDP)
• Gross domestic product (GDP) is the total monetary or market value of all the
finished goods and services produced within a country’s borders in a specific
time period.
• Though GDP is typically calculated on an annual basis, it is sometimes
calculated on a quarterly basis as well.
• GDP provides an economic snapshot of a country, used to estimate the size of an
economy and its growth rate.
• GDP can be calculated in three ways, using expenditures, production, or incomes
and it can be adjusted for inflation and population to provide deeper insights.
• Real GDP takes into account the effects of inflation while nominal GDP does
not.
• Though it has limitations, GDP is a key tool to guide policymakers, investors,
and businesses in strategic decision-making.
5. How to calculate GDP
• Expenditure approach
• Income approach
• Production approach
6. Gross National Production (GNP)
• In other words, GNP is the monetary worth of goods and services
produced utilizing the means of production owned by a country’s
residents and companies, regardless of their location. Governments use
this data to estimate manufacturing, employment, savings and
investments, inflation, etc., and make laws accordingly. It differs from
GDP that considers the total value of products made inside the borders
of a state.
7. • Y = C + I + G + NX + Z
• Where,
• C = Consumption expenditures
• I = Business Investments
• G = Government expenditures
• NX = Net exports (exports – imports)
• Z = Net income (Net income of domestic residents or firms from overseas
investments – Net income of foreign residents or firms from domestic
investments)
8. Differences Between GDP and GNP
• Gross Domestic Product (GDP) and Gross National Product
(GNP) are considered to measure a country’s annual output, where
Gross Domestic Product (GDP) is a measure of national production
during the whole year. In contrast, Gross National Product (GNP)
measures the annual output or manufacturing by a country’s citizens in
their home country or abroad. Hence, the country’s border is not
considered in the GNP calculation.
9. Gross National Income (GNI)
• GNI is another measure of economic growth. It is the sum of all
income earned by citizens or nationals of a country (regardless of
whether the underlying economic activity takes place domestically or
abroad). The relationship between GNP and GNI is similar to the
relationship between the production (output) approach and the income
approach used to calculate GDP.
• GNP uses the production approach, while GNI uses the income
approach.
10. Real Vs Nominal GNP
Nominal GDP measures the annual production of goods or
services at the current price. On the other hand, Real
GDP measures the yearly production of goods or services
calculated at the actual cost without considering the effect of
inflation. Hence, nominal gross domestic product is regarded as
a more apt measure of GDP.
Nominal GDP reflects the raw numbers in current dollars
unadjusted for inflation.
Real GDP adjusts the numbers by fixing the currency value,
thus eliminating any distortion caused by inflation or deflation.
11.
12. Net National Production (NNP)
• Net national product (NNP) is gross national product (GNP), the total value
of finished goods and services produced by a country's citizens overseas and
domestically, minus depreciation.
• Gross Domestic Product (GDP) is the most popular method to measure
national income and economic prosperity, although NNP is prominently
used in environmental economics.
• NNP=MVFG+MVFS−Depreciation
• where:
• MVFG=market value of finished goods
• MVFS=market value of finished services
13. National Income (NI)
• The national income (NI) is an aggregate value of the total production
of goods and services by a nation’s residents pertaining to a particular
accounting year.
• It facilitates standard of living comparisons between different nations.
When we divide NI by a country’s total population, we get residents’
per capita income.
• It is represented by the following formula:
National Income = Consumption + Government Expenditure
+ Investments + Net Exports + Foreign Production by Nation’s
Residents
– Domestic Production of the Country’s Non Residents
14. Saving and Investment
• Saving involves income that is not consumed. Typically surplus income is saved in
a bank account. But, it could be saved as cash (cash under the bed e.t.c)
• Levels of savings are influenced by
• Interest rates – higher interest rates make it more attractive to save
• Confidence – low confidence can encourage households to save more
Investment
• an addition to the capital stock. For example, investment can involve spending on
factories or new capital. Investment can also involve spending on human capital
such as investment in training and education.
15. • Levels of investment are affected by
• Interest rates – higher interest rates make investment more expensive
(cost of borrowing goes up)
• Confidence – if firms are confident, they are more willing to invest.
• Economic growth – An increase in the rate of economic growth will
encourage firms to invest to meet future demand.
• Saving = investment
