GDP Concepts: Caiib Paper 1 (Module A), Unit 9

GDP Concepts: Caiib Paper 1 (Module A), Unit 9

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So, here we are providing “Unit 9: GDP Concepts” of “Module A: Economic Analysis” from “Paper 1: Advanced Bank Management (ABM)”.

The Article is Caiib Unit 9: GDP Concepts

♦GDP Concepts

• Gross Domestic Product (GDP): It is the total market value of all the final goods and services produced within the territorial boundary of a country, using domestic resources, during a given period of time, usually 1 year.
• Gross national Income at Market Price = GDP at Market Price + Taxes less subsidies on production and imports (net receivable from abroad + Compensation of Employees (Net Receivables from abroad) + Property income (Net receivables from abroad)
• Gross National Product (GNP) = GDP + Total Capital gains from overseas investment (-) income earned by foreign nationals domestically

GNP= GDP+NR (Net Income from assets abroad  (Net Income Receipts) )

GDP Computation

According to the National Income Accounting, there are three ways to complete GDP:

• Expenditure wise
• Income wise
• Product wise

Expenditure Method  

GDP= Consumption + Gross Investment + Government Spending + (Exports- Imports) GDP = C+I+G+(X-M)

• Consumption: This included personal expenditures pertaining to food, households, medical expenses, rent, etc
• Gross Investment : Business Investment as capital which includes construction of a new mine, purchase of machinery and equipments for a factory, purchase of software, expenditure on new houses, buying goods and services but investments on financial products is not included as it falls under savings.
• Government spending: It is the sum of government expenditures on final goods and services.

1. Exports: This includes all goods and services produced for overseas consumptions.
2. Imports: This includes any goods or services imported for consumption and it should be deducted to prevent from calculating foreign supply as domestic supply.

 Income Approach 

GDP from the income is the sum of the following major components:

1. Compensation of employees
2. Property income
3. Production taxes and depreciation on capital

• Compensation of Employees: It represents wages, salaries and other employee supplements.
• Property Income: It constitutes corporate profits, proprietor’s income, interests and rents.
• GDP at market price measures the value of output at market prices after adjusting for the effect of indirect taxes and subsidies on the prices. Market price is the economic price for which a good or service is offered in the market place.
• GDP at factor cost measures the value of output in terms of the price of factors used in its production.
• GDP at factor cost = GDP at Market Price – (Indirect taxes – Subsidies)

 Product Approach

In India we have getting GDP product wise belongs to 8 sectors.

• Real GDP or GDP at constant price: It means the value of today’s output at yesterday price. Real GDP is calculated by tracking the volume or quantity of production after removing the influence of changing prices or inflation.
• Normal GDP or GDP at Current prices: It represents the total money value of final goods and services produced in a given year, where the values are expressed in terms of the market prices of each year.
• Factors of production are : Land, Labour, Capital and Entrepreneur

Basic Concept of National Income

Net Domestic Product (NDP):

• NDP= GDP- Depreciation
• GDP= NDP + Depreciation

Gross National Product (GNP):

• GNP= GDP+ NFIA (Net factor income from aborad)
• GDP= GNP- NFIA

Net National Product (NNP):

• NNP= GNP- Depreciation

Net Domestic Product (NDP):

• NDP= NNP – NFIA
• NNP= NDP + NFIA

Read More Article Caiib Paper-1, Module A

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