GDP (Gross Domestic Product, NDP (Net Domestic Product), GNP (Gross National Product) and NNP (Net National Product) are the main indicators of economic that are used to measure the value of Good & Services of a country. These are very useful tools that are used by economists to determine the health and performance of a country’s economy.
♦ Read full article to understand the concept of GDP, NDP, GNP and NNP from in simple way!
● Concept of GDP, NDP, GNP and NNP:-
To know the economic health and performance of a country, it is very important to do a comprehensive measurement. For such measurements, there are four main elements – GDP, GNP, NDP and NNP.
● Factor Cost and Market Price:-
To understand the full concept of GDP, NDP, NDP and NNP, let us first understand what is “Factor Cost” and “Market Price”.
1 . Factor Cost – Total cost inccurred in the production of goods and services (like rent, wages, raw materials, etc.) is known as factor cost. Basically it is total cost of making goods or services. It does not include indirect taxes but it includes all subsidies provided.
2 . Market Price – Actual price of good and services at which they are bought and sold in the market is known as market price. It includes factor cost, subsidies as well as applicable taxes.
Now, let’s understand the meaning and concept of GDP, GNP, NDP and NNP.
● GDP – Gross Domestic Product:-
GDP is the sum total of market value of all goods and services that are provided within country’s political border in a particular time period. It is like a big financial report card for a country.
It includes all the money made from selling things, providing services and more, within political border of a country. It is usually measured in a year, and it helps to understand if a country’s economy is growing or shrinking.
There are mainly 3 ways to calculate GDP:
- Production Approach: In this, we sum up value of all the goods and services made in the country.
- Incoming Approach: This method sums up all the money people earned, e.g. salaries, profit and rents. It shows us how much money people are making in the country.
- Expenditure Approach: In this method, we sum up all the spending done by people in a country. This includes on what things people are spending, like, buying cars, houses or going on vacation.
GDP is an important number because by the help of this businesses and government make decisions. If GDP is going up, they might invest more, create jobs and make further plans of growth. If GDP is going down, they might need to find more ways to boost up economy.
● NDP – Net Domestic Product
NDP is similar to GDP, but it shows more realistic measure of country’s economic performance.
In the process of production of goods & services, the machines (or other capital goods) that are used for production, got wear and tear due to which their value decreases. Such decreases in the value is called ‘Depreciation’. NDP subtracts depreciation from GDP to show actual value a country is earning in all.
Let’s understand with an example. Imagine you have a toy by which you play with your friends. As you play, the toy starts getting little worn out and loses some of its value. That’s loosed value of toy is known as ‘Depreciation’. NDP takes this depreciation into account. NDP is just like looking the value of the toy after subtracting the Depreciation.
So, while GDP calculates how much money a country makes in a year, NDP calculates it more realistically by considering the wear and tear on the country’s Assets.
● GNP – Gross National Product
GNP is the sum of all goods and services produced or sold by the residents of a country, whether inside countries, or living abroad within a specific time period. It includes both countries, internal production of goods and services, as well as the net income that citizens earn from abroad, such as profit, salaries, and wages from foreign investment.
So GNP is not just what’s happening within countries Borders, but it also includes the money that a country’s people make in other part of the world. It helps to understand how financially successful a country’s citizens are both locally and globally.
● NNP – Net National Product
Just Like NDP, here also depreciation is deducted from GNP to calculate NNP. It shows the net value earned after deducting all the depreciation on capital goods.
So, NNP is like looking at the money, a country’s people earned all from inside country as well as from abroad, after subtracting the cost of maintaining and replacing the capital goods used in the process of production.
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