Hamro Library
Hamro Library


Concepts of GDP, GNP, NNP, PCI, PI, DI :


1. Gross domestic product (GDP):
It is a monetary measure of the market value of all final goods and services produced in a period (quarterly or yearly). Nominal GDP estimates are commonly used to determine the economic performance of a whole country or region, and to make international comparisons. Nominal GDP per capita does not, however, reflect differences in the cost of living and the inflation rates of the countries; therefore using a basis of GDP at purchasing power parity (PPP) is arguably more useful when comparing differences in living standards between nations.

According to expenditure method, GDP is the sum of consumption (C), investment (I) and government spending (G).

GDP = C + I + G

2. Gross national product (GNP):
It is the market value of all the products and services produced in one year by labor and property supplied by the citizens of a country. Unlike gross domestic product (GDP), which defines production based on the geographical location of production, GNP indicates allocated production based on the location of ownership. In fact, it calculates income by the location of ownership and residence, and so its name is also the less ambiguous gross national income.

According to expenditure method, we use the following formula to calculate the value of GNP:

GNP = C + I + G + (X-M)
= GDP + (X-M)

X = Exports
M = Imports

3. Net national product (NNP) or Net Domestic Product (NDP):

NNP refers to the gross national product (GNP), i.e. the total market value of all final goods and services produced by the factors of production of a country or other polity during a given time period, minus depreciation. Similarly, net domestic product (NDP) corresponds to gross domestic product (GDP) minus depreciation. Depreciation describes the devaluation of fixed capital through wear and tear associated with its use in productive activities.

In national accounting, net national product (NNP) and net domestic product (NDP) are given by the two following formulae:
NNP/NDP = C + I + G + (X-M) – D or CCA

= GNP – D or CCA

D = Depreciation
CCA = Capital Consumption Allowance

4. National Income (NI):
The total net value of all goods and services produced within a nation over a specified period of time, representing the sum of wages, profits, rents, interest, and pension payments to residents of the nation is known as national income. In fact, GDP, GNP, NNP are the different concepts of national income. In the expenditure method, when subsidies are added and indirect taxes are subtracted from NNP, we can derive NI.

NI = NNP + Subsidies - indirect taxes

5. Personal Income (PI) :
Personal income is distributed to different persons or households. All amounts of national income do not go to persons. Taxes are imposed on income, the provident fund is deducted, on the other hand, transferable payments like pensions, aged allowances, unemployment allowances, etc are given by the government. So they must be adjusted. PI can be presented by the following formula:

PI = NI - Income tax - undistributed profits - social securities + transferable payments

6. Disposable Income (DI) :
The income left after paying direct taxes from personal income is called DI. It is because, all the income earned by individual and households are not available for consumption. It is expressed as: 

DI = PI - Direct taxes

7. Per capita income or average income (PCI):
It measures the average income earned per person in a given area (city, region, country, etc.) in a specified year. It is calculated by dividing the area's total income by its total population. This is used to compare the wealth of one population with those of others. Per capita income is often used to measure a country's standard of living. It is usually expressed in terms of a commonly used international currency such as the euro or United States dollar, and is useful because it is widely known.

PCI = National Income ÷ Total population

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