Updated: Dec 22, 2020
What is Gross Domestic Product (GDP)?
GDP (Gross Domestic Product) is the total value of goods and services produced within a country. GDP is a measure of the economy. Higher the GDP the better the economy. GDP is calculated quarterly or yearly.
‘Nominal’ GDP per capita is more commonly used to compare country’s economies but some argue that ‘Purchasing Power Parity (PPP)’ GDP per capita is better because it considers the cost of living & inflation.
C: Consumption, that is total value goods & services bought by individuals in a country. This contains the highest part of the total GDP. When a country’s consumers prefer local/ domestic/country-made products it really helps boosting the economy hence the GDP.
B: Business spending, this is capital used by businesses to buy assets like machinery, consulting, un-sold shares, etc. and also investments done by private companies.
G: Government spending, this is the total value of consumptions, investments done by the government.
X: Net export, which is total export minus total import. Exports done by a country should be always higher than the imports meaning that it should produce more value in the country to export it to other countries.
In India major chunk of GDP comes from agriculture, industry, and service.
Difference between Real & Nominal GDP
The real GDP also considers inflation which is a real & big value. Nominal GDP considers the current market price for which year it is calculated to get the the total value of goods & services. But the real GDP sets a base year and compares the value of goods & services in current year with the base year to derive the GDP.
For India base year in real GDP is 2011-12.
The ratio of nominal GDP to real GDP is called the Cost Inflation Index (CII).
What is the Wholesale Price Index (WPI) & Consumer Price Index (CPI)?
These two indices are a measure of inflation in a country.
When products are manufactured in country, they sold in the wholesale markets at wholesale prices but this price is very different from prices paid by retail consumers.
To calculate the change in cost per product at these two levels (wholesale consumers & retail consumers) there are two index WPI & CPI.
In India this method is adopted in 2013 so the base year considered is 2012 and the base value is 100, it is calculated by the Ministry of Statistics and Programme Implementation.
Almost all countries consider CPI a more important index of inflation as it calculates inflation at the end-consumer level.
In India CPI is calculated separately for three areas rural, urban, and combined. CPI is classified broadly into six categories Food & Beverages, Clothing & Footwear, Tobacco & Intoxicants, Housing, Fuel & Light, and Miscellaneous.
What is the Gross National Product (GNP)?
GNP (Gross National Product) is the value produced by national companies & individuals in spite of where they’re located.
In short GNP= GDP + (Income/assets of companies & individuals in all countries– Income paid to foreign companies & individuals located in a country)
For example, Tata Consultancy Services (TCS) have offices outside India also. Total assets & income earned by TCS outside India are also considered in GNP. But there are foreign companies working in India like Microsoft.
So, total assets & income earned by foreign companies & individuals in India are deducted from total assets & income earned by Indian companies outside India. This value is added to GDP to get GNP.
What is Net Domestic Product (NDP)?
Assets of companies like machinery, equipment, tools & tackles, cars, etc. can deprive in value over a period of time. This depreciation is considered in the calculation of NDP. So, NDP is equal to GDP minus the depreciation.
NDP= GDP – Depreciation
What is Net National Product (NNP)?
As the same logic as NDP, NNP is equal to GNP minus the depreciation.
NNP= GNP – Depreciation
These values are calculated to check the cost of living in each countries. These are measures to check whether the economy is growing or not.
For example, suppose last year’s GDP of a country was 1000 and if it increases to 1200 that means GDP is increased by 20%. This clearly means the country is producing enough goods & services to cater to all demand as well as exporting them to other countries more than the import.