Macroeconomics I

Introduction

Module title: Macroeconomics I

Semester: II
Year 2019-2020
Level: Postgraduate
Module Convenor: Dr. Shikta Singh
Session I :
 INTRODUCTION

Module Context:
The module is designed especially for students
taking Macroeconomics at MBA. It is intended
to provide students with an understanding of
important macroeconomic factors and variables.
The course analyses how macroeconomic
variables operate; and it develops an
understandings of the international money and
financial market, in or outflows of capital. The
course also draws on the debates in real
economy and tries to use both old and new
theories to understand them.
 Introduction

Module aims and objectives:

1.To familiarise the students with some of the most
important macroeconomic variables in the economy,
for example GDP,GNP,CPI,PPI…
2.To introduce students to some important
macroeconomic policies including fiscal and
monetary policies & growth policies.
3.To examine some different cases in term of using
macroeconomic policies to develop economy.
Teaching and learning methods:
In class contact hours there will be lectures,
discussions and assistance with students’assignment
work,reading and using books. During the seminars the
students will be expected to discuss the provided topics
on the problems of real economy.
Assessment methods:
There is a (written assignment, ted talk and mid-sem
examination) and end sem. It is worthy 50% and 40%
respectively. Class participation is 10% .
Suggested Supplementary Reading
Mankiw, Principles of Economics
Mankiw, Macroeconomics 5th ed ,
Dornbush & Fischer
 Lecture programme
Chapter1: Introduction lecture programme

Chapter2:The Data of Macroeconomics

Chapter3:Aggregate Demand and Fiscal policy

Chapter4:Money and Monetary &

Fiscal policy
Chapter5:Inflation and unemployment

Presentation assignment

Chapter6:Economic growth

Chapter 7: The Union Budget

Revision
 I.Introduction
Everyone is concerned about macroeconomics
lately. We wonder why some countries are growing faster
than others and why inflation fluctuates. Why?
Because the state of the macro economy affects
everyone in many ways. It plays a significant
role in the political sphere while also affecting
public policy and social well-being.

There is much discussion of recessions-- periods in which real

GDP falls mildly-- and depressions, concerns with issues such
as inflation, unemployment, monetary and fiscal policies.
Economists use models to understand what goes on in the economy.
Here are two important points about models: endogenous variables
and exogenous variables.
Endogenous variables are those which the model tries to explain.
Exogenous variables are those variables that a model takes as given. In
short, endogenous are variables within a model, and exogenous are the
variables outside the model.
Price Supply

This is the most famous

P* economic model. It describes
the ubiquitous relationship
Demand between buyers and sellers in
the market. The point of
Q* Quantity intersection is called an
equilibrium.
 People face tradeoffs
 The cost of something is what you give up to get it
 Rational people think at the margin
 People respond to incentives
 Trade can make everyone better off
 Markets are usually a good way to organize economic
activity
 Governments can sometimes improve market
outcomes
 A country's standard of living depends on its ability to
produce goods and services
 Prices rise when the government prints too much
money
 Society faces a short-run tradeoff between Inflation
and unemployment.
Economists typically assume that the market will go into an
equilibrium of supply and demand, which is called the
market clearing process.
But, assuming that markets clear continuously is not
realistic. For markets to clear continuously, prices would
have to adjust instantly to changes in supply and demand.
But, evidence suggests that prices and wages often adjust
slowly.

So, remember that although market clearing models assume

that wages and prices are flexible, in actuality, some wages
and prices are sticky.
 Microeconomics is the study of how households and firms
make decisions and how these decision makers interact in the
marketplace. In microeconomics, a person chooses to
maximize his or her utility subject to his or her budget constraint.

Macroeconomic events arise from the interaction of many

people trying to maximize their own welfare. Therefore, when
we study macroeconomics, we must consider its
microeconomic foundations.
 Macroeconomics (from the Greek prefix
makro- meaning "large" and economics) is a
branch of economics dealing with the
performance, structure, behavior, and
decision-making of an economy as a whole,
rather than individual markets. This includes
national, regional, and global economies.
 III. Macroeconomics system
1. Inputs
+ Exogenous or independent variables:
weather, politics, population, technology
and patents or know-how
+Endogenous or dependent variables:
direct impacts-fiscal policy, monetary policy,

2. AS+AD
2.1. Aggregate Demand
2.2 Aggregate Supply
 2. Outputs

Yield, employment,
Average price,
Inflation,interest,budget,
Trade balance and balance of International
payment,
Economic Growth
 CHAPTER II

Data of macroeconomics

National Income Accounting

 Income, Expenditure
And the Circular Flow
There are 2 ways Total income of everyone in the economy
of viewing GDP Total expenditure on the economy’s
output of goods and services
Income $
Labor
Households Firms
Goods

Expenditure $
For the economy as a whole, income must equal expenditure.
GDP measures the flow of dollars in this economy.
 Two Sector Economy-
 Every economy is a dynamic system. The economy is
''moving'', constantly operating. The economy has a ''velocity'';
households are consuming, firms are producing - we're
moving towards the future. But like a rider on a bicycle, our
economy gets the ''wobbles'' from time to time.
 The simplest form of the model is called the two sector
circular flow model. In this model, we assume that there are
only two areas that need concern us: the household sector and
the business sector. (We will introduce the government sector
and the overseas sector later).
 In the two sector model of the economy,
employment and production reached an
equilibrium when injections of funds into the
economy equals the leakages. Injections were,
as you will recall, made up of investment by
firms and leakages were savings by
households. We can now add the other
''leakages'' and ''injections'' mentioned into
our model.
 In ''four sector'' model of our economy, leakages are
actions that slow down the rate of movement of
resources and income through the circular flow of our
economy. Saving is a leakage; and so is taxation and
expenditure on imports.
 Actions that increase the flow of income and resources
within our economy include government spending, and
investment by firms. Exports add to our income, and
also are an injection. Our economy will reach an
equilibrium when total leakages equal total injections :
 Leakages = Injections S + T + M = I + G + X You will
note that G - T is the government's Budget deficit or
surplus.
 If leakages (the variables on the left hand side of this
equation) are, in total, greater than the injections (the
variables on the right hand side), then the economy
will tend to ''contract''. Production and income will fall,
and unemployment will rise.
• National income is the money
value of all the final goods and
services produced by a country
during a period of one year.
National income consists of a
collection of different types of
goods and services of different
types.
• Sincethese goods are measured in
different physical units it is not
possible to add them together. Thus
we cannot state national income is so
many millions of meters of cloth.
Therefore, there is no way except to
reduce them to a common measure.
This common measure is money.
• Ifthe value of a meter of cloth is Rs.
20 and the total cloth produced is
100 meters, then the money value of
cloth is Rs. 2000. In this way we can
find out the value of other goods
and services and the total value of
all the goods and services produced
during one year.
• Gross domestic product

• Gross domestic product at constant

price and at current price

• Gross domestic product at factor

cost and Gross domestic product at
market price
• Net domestic product

• Gross national product

• Net national Product

• Net national product at factor

cost or national income
• Gross domestic product is
the money value of all final
goods and services
produced in the domestic
territory of a country during
an accounting year.
 II.Computing GDP
1.Rules for computing GDP
1) To compute the total value of different goods and services,
the national income accounts use market prices.
Thus, if
$0.50 $1.00

GDP = (Price of apples  Quantity of apples)

+ (Price of oranges  Quantity of oranges)
= ($0.50  4) + ($1.00  3)
GDP = $5.00

2) Used goods are not included in the calculation of GDP.

3) The treatment of inventories depends on if
the goods are stored or if they spoil. If the
goods are stored, their value is included in
GDP.

If they spoil, GDP remains unchanged. When

the goods are finally sold out of inventory,
they are considered used goods (and are not
counted).
4) Intermediate goods are not counted in GDP–
only the value of final goods. Reason: the
value of intermediate goods is already included
in the market price.

Value added of a firm equals the value of the

firm’s output less the value of the intermediate
goods the firm purchases.
5) Some goods are not sold in the marketplace and
therefore don’t have market prices. We must use
their imputed value as an estimate of their value. For
example, home ownership and government services.
• Domestic territory Means

a. Territory lying within the political

frontiers, including territorial waters of
the country.

b. Ships and aircrafts operated by the

residents of the country between two or
more countries.
c. Fishing vessels, oil and natural gas rigs,
and floating platform operated by the
residents of the country in the international
waters or engaged in extraction in areas in
which the country has exclusive rights of
exploitation.

d. Embassies, consulates and military

establishment of the country located
abroad.
 GDP = GNP - NFIA
 GDP mp = GNP mp - NFIA
 GDP fc = GDP mp – Indirect tax + subsidy
 NDP = GDP – Depreciation
 NDP fc = NNP fc - NFIA
 NDP fc = NDP at mp – indirect tax +subsidy
 G N P at factor cost = GNP at market prices
- Indirect Business Taxes + Subsidies
 NNP = GNP – Depreciation
 NNP at market price= GNP at market price-
Depreciation
 NNP fc = GNP fc – Depreciation
 NNP fc = NNP mp – Indirect taxes + Subsidies
• GDP can be estimated at current
prices and at constant prices. If
the domestic product is
estimated on the basis of the
prevailing prices it is called
gross domestic product at
current prices.
• If GDP is measured on the basis of
some fixed price, that is price
prevailing at a point of time or in
some base year it is known as GDP
at constant price or real gross
domestic product.
YEAR PRODUCTION CURRENT YR. BASE YR. GDP AT GDP AT
PRICE PRICE CURRENT YR. CONSTANT YR.

2015-16 100 10 10 1000 1000

2016-17 100 15 10 1500 1000

2017-18 150 15 10 2250 1500

• The contribution of each producing
unit to the current flow of goods
and services is known as the net
value added. GDP at factor cost is
estimated as the sum of net value
added by the different producing
units and the consumption of fixed
capital.
• Conceptually, the value of GDP
whether estimated at market price or
factor cost must be identical. This is
because the final value of goods and
services must be equal to the cost
involved in their production.

• GDP F.C = GDP M.P – IT + S.

YEAR Production F.C NIT M.P GDP at GDP at
F.C M.P

2017-18 100 10 1 11 1000 1100

2018-19 100 10 3 3 1000 1300

• While calculating GDP no provision
is made for depreciation allowance
(also called capital consumption
allowance). In such a situation gross
domestic product will not reveal
complete flow of goods and services
through various sectors.
• A part of is therefore, set aside in
the form of depreciation allowance.
When depreciation allowance is
subtracted from gross domestic
product we get net domestic
product.

• NDP = GDP – Depreciation.

• Gross national product is defined as the
sum of the gross domestic product and
net factor incomes from abroad. Thus in
order to estimate the gross national
product of India we have to add net factor
income from abroad - income earned by
non-resident in India to form the gross
domestic product of India.
• In brief GNP = GDP + NFIA.
• Tn= Net Income from abroad
 *3 cases :
+ GNP > GDP (Tn>0): domestic economy has
impacts in other economies.

+ GNP < GDP (Tn<0): foreign economies have

impacts in domestic economy.

+ GNP = GDP (Tn=0): no conclusion

 Net Economic Welfare -NEW

GDP, GNP doesn’t compute some goods and

services which aren’t sold, or illegal
transactions or activities of black market,
negative externality…
V1 - Value of goods and services which aren’t sold
+ Revenues from transactions in black market

V2- negative externality for natural

resources,environment, such as noise traffic jam
…

NEW reflects welfare better than GNPm but it is very

difficult to have enough data to compute
NEW,therefore, economists still use GDP and GNP.
• It can be derived by subtracting
depreciation allowance from GNP. It
can also be found out by adding the
net factor income from abroad to
the net domestic product.

• NNP = GNP - Depreciation

• If the net factor income from abroad
is positive then NNP will be more
than NDP, If the net factor income
from abroad is negative then NNP
will be less than NDP and it would be
equal when net factor income from
abroad is zero.

• NNP = NDP + NFIA

• NNP at factor cost is the
volume of commodities and
services turned out during an
accounting year, counted
without duplication. It can also
be defined as the net value
added at factor cost in an
economy during an accounting
year.
• NNP at factor cost or national income
is defined as the sum of domestic
factor incomes and net factor income
form abroad. If NNP figure is available
at market price we will subtract
indirect taxes and add subsidies to
the figure to get NNP at factor cost or
national income of the economy.
• NNP at FC = National Income = FID +
NFIA
• FID factor income earned in the
domestic territory of a country.
• Net Factor Income from Abroad.
• Personal income and disposable
income are two concepts of national
income very commonly used in
advanced countries. Personal
income may be defined as the
current income of persons or
households from all services.
Personal income is not a measure of
production.
• All personal income is not at the
disposal to be spent on consumption.
Individuals have to pay personal direct
taxes to the government. They are free
to spend only after the payment of
taxes.

• DPI = Personal income – Personal

Direct taxes.
• The disposable personal income may
be spent fully or individuals may
save. What remains after saving is
called the personal outlay. Disposable
income is equal to consumption and
savings.

• Disposable outlay = Disposable

income – Savings.
• Since national income does not reveal
the real state of the economy, the
concepts of real income has been used.
To find out the real income of the
economy, a base year is selected and
the price level of that year is assumed
to be 100.
• Real income= Money Income × 100
Price Index
• The national income of a country can
be measured in three alternative
ways
• Census of production method
• As a flow of income, and
• As a flow of expenditure
• Added to this, there is yet another
method of estimating national
income i.e., Value added method.
• This method is popular in U.S.A. and is
called as Total Product method or
Goods Flow Method. In India, It is
known as inventory or Product method.
In this method, the economy is
classified in to three transaction sector
like industrial, services and foreign
transaction sector where international
payments are considered.
• Wecalculate the money value of
all final goods and services
produced in an economy during
a year. The money value of these
goods and services is calculated
at market price. The sum-total is
called the GDP at market price
 The sum of the unit profit, the
unit depreciation cost, and the
unit labour cost is the unit value
added. Summing value added
per unit over all units sold is
total value added.
• We estimate the income earned
by various factor services
engaged in the process of
production. The sum of these
incomes provides us the
measure of gross national
income at factor cost.
• GDP = wages and salaries + rent
+interest + Dividends +
undistributed corporate profits +
corporate tax+ mixed incomes +
direct taxes + indirect taxes +
depreciation + net income from
abroad.
The Income Method measures
national income from the side
of payments made to the
primary factors of production in (-) D, NIT
the form of rent, wages,
interest and profit for their
productive services in an
accounting year.
 Income approach
 All final goods and services are produced using factors of
production. By summing up the factor payments, we can find
the value of GDP. Some adjustments are required to balance
the account.
 Compensation of employees includes the wages, salaries,
fringe benefits, Social Security contributions, and health and
pension plans.
 Rent is the income of the property owners.
 Interest is the income of the money capital suppliers.
 Proprietor’s Income is the income of incorporated business,
sole proprietorships, and partnerships.
 Corporate Profits is the income of the corporations’
stockholders whether paid to stockholders or reinvested.
 Sum of the above items is the National Income (NI).
 Adjustments:
 Indirect business Taxes (general sales taxes, business
property taxes, license fees etc.) should be added to
NI. They are not considered to be payments to a factor
of production, but they are part of total expenditures.
 Depreciation is another cost, which should be added.
 Net foreign factor income (income earned by the rest
of the world – income earned from the rest of the
world) should be added to adjust GNP to GDP.
 Computing GDP: GDP = Compensation of employees +
Rent + Interest + Proprietor’s Income + Corporate
Profits + Indirect & direct taxes + Depreciation + Net
foreign factor income
• Prof. Samuelson calls this as “
Flow of Product Approach”. In
India, it is known as Outlay method.
GDP is the sum of expenditure
incurred on goods and services
during a financial year in a country.

• GDP = C + I + G + (X – M)
The expenditure method is the
most widely used approach for
estimating GDP, which is a
measure of the economy's
output produced within a
country's borders irrespective
of who owns the means to
production. The GDP under
this method is calculated by
summing up all of the
expenditures made on final
goods and services.
• We sum up the flow of
expenditure in an economy to
arrive at national income
estimates, If we add the value
of expenditure on all these
items we get the value of gross
national expenditure at market
prices.
• In order to avoid double counting
value added at each stage of
production should be calculated to
arrive at GNP. The difference between
the value of output and input at each
stage of production is called the value
added. By summing such value added
for all industries in the economy, GNP
can be found out.
 Here, we will show you the two different ways of calculating
GDP using the information from different factors given in
Table 1.

 Using the Expenditures Approach

 Table 1: Expenditures
 Transfer Payments $54 Interest Income $150 Depreciation $36
Wages $67 Gross Private Investment (I)$124
 Business Profits $200 Indirect Business Taxes $74
 Rental Income $75 Net Exports (X-M)$18
 Net Foreign Factor Income $12 Government Purchases (G)$156
Household Consumption (C)$304
 By using the data in Table 1 we can calculate the GDP using the
expenditures approach. As you can see, the table contains more data
than is necessary so you have to look for the parts which make up the
expenditures approach to calculating GDP. The necessary data is
highlighted within the table.
Remember:

 GDP = C + G + I + (X - M) In this case the C is represented by Household

Consumption which is $304.
The G refers to Government Spending which is $156.
I is gross private investment and is $124.
(X - M) is the net exports and in the table is shown to be $18.

Therefore:

 GDP = $304 + $156 + $124 + $18

GDP = $602

 Using the Income Approach
 Table 1 also contains the data necessary to calculate
GDP using the income approach.
 Table 1: Income

 Transfer Payments $54 Interest Income (i)$150

Depreciation $36 Wages (W)$67 Gross Private
Investment $124 Business Profits (PR)$200
 Indirect Business Taxes $74
 Rental Income (R)$75 Net Exports $18 Net Foreign
Factor Income $12 Government Purchases $156
Household Consumption $304
 In this case we use the formula:

 NI = W + R + i + PR

 W is the wages that are represented by $67 in the table.

Rental income is the R and is $75.
Interest income is i and is $150.
PR are business profits and are $200.

 Therefore:

 NI = $67 + $75 + $150 + $200

NI = $492
GDP = NI + Indirect Business Taxes + Depreciation
GDP = $492 + $74 + $36
GDP = $602

• Lipsey defined the circular flow of
income as “ the flow of payments
from domestic households to
domestic firms and back again”.
National income and expenditure flow
in a circular manner. In any economy,
both commodities and factors of
production are constantly being
exchanged for money.
• Simple Economy

• Two sector model = Y = C + I

• Three Sector Model = Y = C + I + G

• Four sector model = Y = C + I + G +(X – M)

• Theconcept of circular flow shows
clearly whether the economy is
working efficiently or whether there
is any disequilibrium in its working. It
also helps in restoring equilibrium.
 Nominal GDP Also known as GDP
 Real GDP Also known as Constant GDP
 Definition Nominal GDP is the market value
(money-value) of all final goods and services
produced in a geographical region, usually a
country. Real GDP is a macroeconomic
measure of the value of output economy,
adjusted for price changes. The adjustment
transforms the nominal GDP into an index for
quantity of total output.
 Nominal GDP = ∑ ptqt
 where p refers to price, q is quantity, and t
indicates the year in question (usually the
current year).

 Real GDP = Nominal GDP/ GDP Deflator100

 R= N/D 100
 In economics, the GDP deflator ( price deflator
for GDP) is a measure of the level of prices of
all new, domestically produced, final goods
and services in an economy. GDP stands for
gross domestic product, the total value of all
final goods and services produced within that
economy during a specified period.
• Simon Kuznets national income is not
limited to the territorial boundaries of a
country. We must include income of all the
residents of a country even if they are
abroad.

• Another difficulty in estimating the national

income in UDC is the prevalence of non-
monetized sector.
• Income earned through illegal
activities is not included in national
income.

• Services rendered free of charge are

not included in GNP. By leaving out
these service, national income will
work out to be less
• Transfer payments are not included in
national income as they do not contribute to
national product.

• Capital
gains and losses are not included in
GNP as they are not the result of current
economic activities.
• In the calculation of national income leisure
foregone in the process of production is not
included.

• In UDC due to illiteracy, most producer do

no keep regular accounts.

• Another difficulty in the measurement of

national income in underdeveloped
countries is lack of adequate statistical data.
• Trend in NNP: The real national income
of India has increased at an annual
average rate of 5.7% during the 65
years of economic planning. If we
consider the last 14 years we find that
the rate of increase in the national
income has been around 6% per
annum. Although this is an
encouraging sign.
 India’s per capita income grew by 9.7%
to Rs1,03,219 in 2016-17 from
Rs94,130 a year ago. In 2015-16, the
rate of growth of the country’s per
capita net income stood at 7.4%.
 “The per capita income at current prices
during 2016-17 is estimated to have
attained a level of Rs1,03,219 as
compared to the estimates for the year
2015-16 of Rs94,130 showing a rise of
9.7%,” an official release said.
 India’s per capita income, a gauge for
measuring living standard, is likely to witness
a slower growth of 8.3% at Rs1,11,782 in
financial year 2017-18.
• They provide as an index of economic
activity and an instrument of economic
planning.
• National income accounting indicates the
growth of the economy in terms of income
and output.
• National income statistics help the policy
makers to frame policies to achieve full
employment and rapid economic growth.
• A complete knowledge about the trends in
national income is essential in economic
planning.

• Research scholar also make use of national

income data pertaining to input, output,
saving, consumption, investment and
employment.

• National income statistics it helps in solving

the remove inequalities in income
distribution.
• “National income” is the money value
of
– final goods
– services
– final goods and services produced
annually in the economy
– intermediary goods
• “National income” is the money value
of
– final goods
– services
– final goods and services produced
annually in the economy
– intermediary goods
• Measurement of national income
in India was done by using
– income methods
– output methods
– expenditure methods
– both income and output
methods
• The income method of measuring
national income can be applied in the
case of
– agriculture
– fishing
– animal husbandry
– trade and transport
• The income method of measuring
national income can be applied in the
case of
– agriculture
– fishing
– animal husbandry
– trade and transport
• The product method of measuring
national income can be applied in the
case of
– trade and transport
– agriculture and allied sectors
– organized banking
– small enterprises
• The product method of measuring
national income can be applied in the
case of
– trade and transport
– agriculture and allied sectors
– organized banking
– small enterprises
• The domestic product is estimated on
the basis of the prevailing prices it is
called
– GDP at current price
– GDP at constant price
– GDP at market price
– None of the above
• If the GDP is measured at the price
prevailing point of time then it is called

– current price
– market price
– constant price
– none of the above
• GDP at factor cost can be measure as
– GDP at market price – Income tax +
Subsidies
– GDP at constant price – Income tax +
Subsidies
– GDP at current price - Income tax +
Subsidies
– None of the above
• GDP at factor cost can be measure as
– GDP at market price – Income tax +
Subsidies
– GDP at constant price – Income tax +
Subsidies
– GDP at current price - Income tax +
Subsidies
– None of the above
• GNP can be defined as
– GDP – Depreciation
– GDP + NFIA
– GDP – Subsidies
– NNP + NFIA
• GNP can be defined as
– GDP – Depreciation
– GDP + NFIA
– GDP – Subsidies
– NNP + NFIA
• Estimate of national income in
India are usually prepared by
– reserve bank of India
– planning commission
– central statistical organization
– national income committee
• Estimate of national income in
India are usually prepared by
– reserve bank of India
– planning commission
– central statistical organization
– national income committee
• One of the problems in estimating
the national income in India is
– low rate of savings
– widespread unemployment
– rapidly rising prices
– large non-monetized
transactions
• One of the problems in estimating
the national income in India is
– low rate of savings
– widespread unemployment
– rapidly rising prices
– large non-monetized
transactions
• Expenditure method is also called
as
– outlay method
– income method
– value added method
– none of the above
• Expenditure method is also called
as
– outlay method
– income method
– value added method
– none of the above
• Expenditure on final goods and
services is broadly classified in to
– consumption expenditure
– investment expenditure
– consumption and investment
expenditure
– none of the above
• Expenditure on final goods and
services is broadly classified in to
– consumption expenditure
– investment expenditure
– consumption and investment
expenditure
– none of the above
• The real national income of India
has increased at an annual
average rate of
1. 5.6%
2. 4.4.%
3. 7.8%
4. 8.9%
• The real national income of India
has increased at an annual
average rate of
1. 5.6%
2. 4.4.%
3. 7.8%
4. 8.9%
• For the past 14 years the net
national income has been around

1. 8%
2. 7%
3. 6%
4. 10%
• For the past 14 years the net
national income has been around

1. 8%
2. 7%
3. 6%
4. 10%
• India’s economic growth rate in
the tenth plan period was (2002-
07)
1. 6.5%
2. 8.0%
3. 8.5%
4. 7.6%
• India’s economic growth rate in
the tenth plan period was (2002-
07)
1. 6.5%
2. 8.0%
3. 8.5%
4. 7.6%
• Per capita income can be
calculate by
– national income / population
– national income – population
– national income * population
– national income + population
• Per capita income can be
calculate by
– national income / population
– national income – population
– national income * population
– national income + population
• NDP can be calculated as
1. GNP – Depreciation
2. GDP – Subsidies
3. GDP – Depreciation
4. GNP – Subsidies
• NDP can be calculated as
1. GNP – Depreciation
2. GDP – Subsidies
3. GDP – Depreciation
4. GNP – Subsidies
• If the GDP is measured at the
price prevailing point of time then
it is called
– current price
– market price
– constant price
– none of the above
• If the GDP is measured at the
price prevailing point of time then
it is called
– current price
– market price
– constant price
– none of the above
• NNP at factor cost is

– NNP at constant price – net direct

taxes
– NNP at market price – net indirect
taxes
– GNP at market price – net direct
taxes
– GNP at constant price – net indirect
taxes
• NNP at factor cost is

– NNP at constant price – net direct

taxes
– NNP at market price – net indirect
taxes
– GNP at market price – net direct taxes
– GNP at constant price – net indirect
taxes
• GNP at factor cost is

– GNP at market price – depreciation

– GNP at market price – net indirect
taxes
– GNP at market price – net income
form abroad
– GDP at market price – net indirect
taxes
• GNP at factor cost is

– GNP at market price – depreciation

– GNP at market price – net indirect
taxes
– GNP at market price – net income form
abroad
– GDP at market price – net indirect
taxes
• GNP at market price – depreciation =
NNP at market price
• GNP at market price – net income from
abroad = GDP at market price
• GNP at market price – net indirect taxes
= GNP at factor cost.
• NNP at market price – net income from
abroad = NDP at market price
• NNP at market price – net indirect taxes
= NNP at factor cost
• GDP at market price – net indirect
taxes = GDP at factor cost
• GNP at factor cost – depreciation =
NNP at factor cost
• NDP at market price – net indirect
taxes = NDP at factor cost
• GDP at factor cost – depreciation =
NDP at factor cost.