BBE [ Book_Bank_of_Economics ]

Gross Domestic Product (GDP)

Value of all final goods and services produced within the geographical boundaries of a country for the
period of one year is called GDP. It does not include income from external sources.

For example, if Pakistani workers are working in America, when they send their remittances to
Pakistan, it will not include in Pakistan’s GDP (included in Pakistan’s GNP), whereas, if American
workers are working in Pakistan, their output is included in Pakistan’s GDP.

■ GDP = GNP – Net factor income abroad

 Gross National Product (GNP)

Value of all final goods and services produced inside and outside the geographical boundaries of a
country for the period of one year is called GNP.

For example, if Pakistani workers are working in America, when they send their remittances to
Pakistan, it will be included in Pakistan’s GNP.

■ GNP = GDP + Net factor income abroad

■ GNP = C + I + G + (X – M)
 Net National Product (NNP)

Net national product is gross national product, the total value of all finished goods and services
produced by a country's citizens (overseas and domestically), minus depreciation.

or

When Depreciation allowance is deducted from GNP of a country, it is called NNP.

■ NNP = GNP – Depreciation Allowance + indirect taxes

■ NNP = C + I + G + NX – D + Ti
 National Income (NI)

The NNP includes indirect taxes such as custom duty, excise duty, sales tax etc. if all these indirect
taxes are deducted from NNP and subsidies are added National income is obtained.

■ NI = NNP – Indirect taxes + Subsidies

 Personal Income (PI)

The income received by the household before the payment of personal taxes is called personal
income.

■ PI = National Income + Transfer Payments + Direct taxes – Undistributed profits of a joint stock
companies.
 Personal Disposable Income (PDI)

The income left after paying direct taxes is called DPI.

■ DPI = PI – Direct taxes