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National income accounting Gross Domestic Product


									National Income Accounting

   1. Gross domestic product (GDP) measures the total market value of final goods
      and services produced by all resident producing units of a territory in a
      specified period of time.

   2. Gross national product (GNP) measures the total income earned by residents
      from engaging in production.

   3. GDP and GNP measure the market value of production. GDP includes market
      value of production by both residents and non-residents in resident producing
      unit. GNP only includes the income earned by residents from production.

   4. GNP = GDP + NIA where NIA = Net factor income from abroad

   5. Output Approach:
      Value added = value of output – value of material input
      (avoid double counting and no need to distinguish intermediate and final

   6. Expenditure Approach:
      GDP = C + I + G + (X-M)

      C – expenditure on intermediate goods is excluded to avoid double counting
         --expenditure on second-hand goods is excluded as no current production
      I -- I = Gross domestic fixed capital formation + changes in inventories
        -- Value of total output = consumption expenditure + changes in inventories
        -- Net investment = gross investment – depreciation
        -- Purchase of residential buildings is included in I.
     G – welfare payments is excluded because it is not accompanied by any
           corresponding production of goods or services
     X-M – Value of total exports of goods = value of domestic exports + value of

   7. NDP = GDP – D (NDP = net domestic product, D = depreciation)

   8. Per capita GDP = GDP / population

   9. GNPfc = GNPmp – IBT + S ( IBT = indirect business tax, S = subsidy)

   10. NI = GNPfc – D ( NI = national income) (NI = NNPfc)

   11. NI = W + r + R + P ( W= wage, r=interest, R=rent, P=gross profit)
                           ( gross profit= net profit + profits tax)
                           ( rental income includes estimate of owner-occupied
                           (depreciation is not included)
12. Points to note:

   Key equations:
   a. GNP = GDP + NIA
       GNPfc = GNPmp - IBT + S
       NI = GNPfc – D = NNPfc
       NI = W + r + R + P

    b.   GNPfc = NI + D
         GNPmp = GNPfc + IBT – S

    c.   GDPmp = GNPmp – NIA

    d.   GNPmp = NNPmp + D
         GDPmp = NDPmp + D
         GDPfc = NDPfc + D

    e.   Gross Investment = Net investment + Depreciation

    f.   Gross profit = Net profit + profit tax

13. Items not included in GDP

   a.    Intermediate goods    Reasons: already included in final goods,
                                        avoid double counting
   b.     Non-marketed goods Reasons: no market value to be counted
   c.    Unreported transactions Reason: data not available
   d.    Illegal transactions  Reason: data not available
   e.    Used goods             Reason: no current production
   f.    Expenditure on shares Reason: buying shares itself creates no
         and bonds                      goods and services, only form
                                         of wealth holding is changed

   g.    Expenditure on welfare Reason: not accompanied by current
         payments                      production
   h.    Income from gifts,     Reason: no current production of goods
         gambling and lucky draws       and services

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