GDP & GNP

SNAPSHOT
 What is GDP?
GDP is the sum of all the products and
services (at market value) produced during an
accounting year by the residents in a political
boundary. The residents can be citizens or
non-citizens of that country. The production
added is without depreciation.
 Net factor income from abroad
Net factor income from abroad is the
difference in Factor income (Rent, Interest,
Wages and Profit) earned by the residents and
companies of a country and the factor income
earned by foreign nationals and foreign
companies in the country.
 What is GNP?
GNP is the total of income earned by the
residents and companies wherever they are in
the world.(either the nationals are living in the
country or they are in rest of the world)
GNP=GDP+NFIA
 WAGES

Residents in ROW
Country
(wages)
Residents Total Wages
(wages)

Subtract foreign
national (wages)
 PROFIT

Residents in ROW
Country +Profit of Indian
Total Profit and Rent
+Indian
Subtract MNCs Companies in rest of
on Land
Companies
profit the world
profit
Subtract rent paid
to MNCs land

Rent paid to
the Indian
companies in
foreign land
 Transfer Payments

Country Residents in ROW

Total contribution to PF
Add Payments account of indian employees
made by foreign
companies to
Indian employees
 Retained Earnings

Country
Subtract Foreign Residents in ROW
companies
retained earnings
in the country Indian companies Total Retained
retained earnings earnings
Add Indian
companies
retained earnings
 If NFIA is +ve then
GNP>GDP
If NFIA is ve then
GNP<GDP
 What is not included in the GDP?
Income from illegal activities like gambling.
Black money or the income not reflected in the
accounts books of the producers.
Transfer payments like scholarships or old age
pensions.
Income from monetary transactions like from
shares and debentures.
Value of second hand goods.
Work done by households and not by
professionals which goes unpaid.
Example