Question

Explain any three national income aggregates. How are they related to each other?

Answer 1

1. Gross Domestic Product at Market Prices: GDP at market prices refers to the total market value of all final goods and services produced within the domestic territory of a country in a given year, valued at current market prices.
   • It includes production by both nationals and non-nationals within the country.
   • It is termed “gross” because it includes depreciation.
   • It is measured at market prices, meaning it includes indirect taxes and excludes subsidies.
2. Gross National Product at Market Prices: GNP at market prices is the market value of all final goods and services produced by the normal residents of a country in a given year, including income earned from abroad and inclusive of depreciation. It accounts for income earned by nationals outside the country and excludes income earned by foreigners inside the country.
3. Net Domestic Product at Market Prices: NDP at market prices is the net value of all final goods and services produced in the domestic territory of a country, after deducting depreciation from GDP. It reflects the actual increase in available goods and services by excluding the wear and tear of capital assets.

These three aggregates are interlinked through adjustments for depreciation and foreign income:

• Gross National Product at Market Prices = Gross Domestic Product at Market Prices + Net Factor Income from Abroad
• Net Domestic Product at Market Prices = Gross Domestic Product at Market Prices − Depreciation
• Combining both: Net National Product at Market Prices = Gross National Product at Market Prices − Depreciation