Revision On

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Revision On National Income Accounting
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Gross Domestic Product(GDP)
Gross Domestic Product is defined as the total
market value of all final goods and services
produced within the boundary of a country over a
given period of time.
Market value Measured in terms of dollars.
Final goods Intermediate goods, semi-produced
goods are all excluded to avoid double counting.
Only goods produced within the boundary of a
country is included, regardless of the citizenry
of the people who make the goods.
GDP is a flow, it is measured periodically.
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Gross National Product(GNP)
Gross National Product is defined as the total
market value of all final goods and services
produced by the citizens of its country over a
given period of time.
Market value Measured in terms of dollars.
Final goods Intermediate goods, semi-produced
goods are all excluded to avoid double counting.
Only goods produced by the residents of the
country will be included.
ID
GDP is a flow, it is measured periodically.
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How to measure GDP ?
By

• Expenditure Approach
• Income Approach
• Output Approach

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Measurement Method I Expenditure Approach
By this approach, GDP C I G - Tr X RE
-M
(1) C Private Household Consumption
(2) I Domestic captial formation
I
Domestic Fixed Capital Formation
Change In Stock
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D.F.C.F.
Gross Investment Expenditure
It refers to
(1) Land
(2) Building
(3) Factory, machinery and equipment
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Change in stock Inventory Expenditure
ve
stocks
-ve
stocks
X Export
Final goods bought by foreign countries
Re-export
Goods exported through H.K.
M Import
Goods produced by foreigners.
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G -Tr Government expenditure minus transfer
payment Transfer payments are excluded as no
productive activities are involved.
In sum
C I G - Tr X Re - M GDP (at market price)

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GDP and GNP
In China , Chinese produce 2 recorders
Taiwaness produce 2 books.
GDP 2 recorders 2 books
If , 1 recorder 10, 1 book 5 Then the GDP
of China 22
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To know GNP of China, we need to know the
production activities of citizens of Chinese in
other countries.
Suppose, In Taiwan, Chinese produce 1 recorder
and Taiwaness produce 1 book.
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Incoming Income 10
Outgoing Income 2
GNP of China GDP Incoming income - Outgoing
income 22 10 - 2 30
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GNP GDP Incoming Income - Outgoing Income
Net Income From Abroad Incoming Income -
Outgoing Income
Hence, GNP GDP Net Income From Abroad GDP
GNP - Net Income From Abroad
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GDP and NDP GDP - Depreciation NDP
Jan.97, USA has 2 spaceships Feb., 1 spaceship is
destroyed
Nov., USA produce 2 spaceships. There are ____
Spaceships at the end of 97
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(1) stocks
(2) Depreciation
(3) Gross investment
The net increase of stock Gross investment -
Depreciation 2 spaceships - 1 spaceship 1
The Net investment is 1
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Similarly To find the net growth of the economy,
we can use NDP GDP - Depreciation NDP is Net
Domestic Product, Used to measure the net
increase in domestic product after adjustments
have been made for the tear and wear of domestic
products.
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Similarly To find the net growth of the economy,
we can also use NNP GNP - Depreciation NNP is
Net National Product, Used to measure the net
increase in national product after adjustments
have been made for the tear and wear of national
products.
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In sum,
C I G - Tr X Re - M GDP (at market
price) N.I.F.A. GNP (at market price) depreciation
NNP (mp)


-
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GDP (mp) and GDP (fc)
Government
Indirect Business Tax
Subsidies
Market prices of goods
Market prices of goods
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Indirect Business Taxes (IBT)
- Taxes imposed on goods and services - Included
in the market prices of the taxed goods
Government
IBT (500)
Market Price (1500)
Factor Income (1000)
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IBT makes income less than value of the good To
find the flow of income to the resident, need to
subtract IBT
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Subsidies
- Imposed on goods / services - Not included in
the market prices of goods / services
Government
Subsidies(500)
Cost of ticket 1000
Fares 500
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Subsidies make the market price of the goods
lower. To find the flow of income to the
residents, we need to add subsidies.
GNP(FC) GNP(MP) - IBT SUB GNP(MP) GNP(FC)
IBT - SUB
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C I G - Tr X Re - M GDP (at market
price) N.I.F.A. GNP (at market price) depreciation
NNP (mp) IBT SUB NNP(FC) or NI
In sum,


-
-

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Measurement Method II Output Approach
Net income from abroad

GNP at market price
Final goods and services at market price
GDP at market price
IBT - SUB
Final goods and services at factor cost
GDP at factor cost
Semi-finished goods
Factors of production
Natural resources
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Value-added Method
Lumbering firm
200
200
Manufacturing
350 - 200 150
350
400 - 350 50
Refining
400
500- 400 100
Retailer A
500
Sum of VA500
Consumer
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The END
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