This document defines key terms related to measuring national income and output, including Gross Domestic Product (GDP), value added approach, inventory changes, GDP expenditure approach, GDP income approach, Gross National Product (GNP), Net National Product (NNP), National Income (NI), Personal Income (PI), Disposable Personal Income (DPI), nominal and real GDP, price indexes like GDP price index and CPI, and sources used in the document.

1. Course: BBA-2
Subject: BE 2
Unit:2
National Income Accounting

2. Gross Domestic Product (GDP)
 The market value of final goods and services
produced within a country’s borders in a
given year
 Does not include:
 Intermediate goods
 Goods produced in the past
 Non-market production
 Black market
 Underground economy
 Household production

3. GDP using value-added
approach
 Final value of output = sum of value-added
by all firms in the economy

4. GDP and inventory
 GDP is a measure of output, not sales
 The annual change in inventory is included in
GDP
 If production is greater than sales, inventories
increase
 If production is less than sales, inventories
decrease
 Inventory change may be planned or unplanned.
 Inventory change is included as a component of
investment spending

5. GDP as expenditure
 GDP = C + I + G + X
 C = consumption
 I = gross investment
 G = government spending
 X = net exports = exports - imports

6. GDP as income
 GDP can also be measured by the
income generated during production
 GDP = wages + rent+ interest + profits
– net factor income from abroad
+ capital consumption allowance
(depreciation)
+ indirect business taxes

7. Other measures of aggregate
output
 Gross National Product (GNP) = GDP + net
factor income from abroad
 Net National Product (NNP) = GNP – capital
consumption allowance
 NNP includes only net investment (= gross
investment – depreciation)
 National Income (NI) = NNP – indirect
business taxes (and some minor adjustments)

8. Other measures of aggregate
output (continued)
 Personal Income (PI) = NI – income earned
but not received + income received but not
earned
 Undistributed corporate profits
 Transfer payments = income received without any
good or service provided in return
 Examples: social security benefits, unemployment
compensation, welfare programs, etc.
 Disposable personal income (DPI)
 DPI = PI – personal taxes
 DPI = C + S
 C = consumption, S = savings

9. Nominal and real GDP
 Nominal variable – expressed in current
dollars
 Real variable – expressed in constant dollars
(using a given base year)
 Price index = cost of basket of goods in the
current year / cost of basket of goods in the
base year
 Inflationary bias
 Chain-type price index

10. Types of price indexes
 GDP price index
 Consumer price index (CPI)
 Producer price index (PPI) (previously
known as the wholesale price index)

11. Source
 Macroeconomics: Theory and Policy-Vanita Agarwal, Pearson
Publication
 Macro Economics-D.M. Mithani, Himalaya Publishing House, Mumbai
 Macro Economics-H.L.Ahuja, S. Chand and Company Ltd., Delhi
 Macro Economic theory-M.C.Vaish, Vikas Publishing House, Delhi
 Macro Economic Analysis-Edward Shapiro, Galyotia Publications (P) Ltd
 Macro Economics-M.L. Seth, Lakshmi Narayan Agarwal Publishers