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Concept of GDP, GNP
and PPP
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MeaningGDP
Gross Domestic Product
GNP
Gross National Product
PPP
Purchasing Power Parity
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GDP
is the total market value of all final goods and services
produced within a country in a given time period usually a
calendar year.
GDPstands for Gross Domestic Product, the total worth
estimated in currency values of a nations production in a
given year, including service sector, research, anddevelopment. That translates to a sum of all industrial
production, work, sales, usiness and service
sector activity in the country.
GDP
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Gross Domestic Product can also e calculated on a per
capita !or per person" asis to give a relative e#ample of theeconomic development of nations.
$t is also considered the sum of value added at every stage of
production !the intermediate stages" of all final goods andservices produced within a country in a given period of time.
The most common approach to measuring and understanding
GDP is the e#penditure method%GDP = consumption + investment + (government spending)
+ (exports imports), or, GDP = C + I + G + (X-M)
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Methods for calculating GDP&. Production Method ' The value added created in all
the sectors of the economy.
(. )#penditure Method ' The sum of the domestic
spending on final goods !less domestic demand
satisfied y imports".
*. $ncome Method + The age, -ent, $nterest and
Profit $ncome generated y the domestic economy.
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)#penditure Method
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riticism of GDPGDP is perhaps the most widely used metric to measure
the health of economies. /ut some economists have argued that
GDP is a flawed metric ecause it does not measure the
economic well eing of society.
For example, it0s possile that GDP is going up
ut median income going down and poverty rate increasing.
GDP also does not measure environmental impact of growth,
nor sustainaility. 1ther important metrics include health of the
population, infant mortality rates, and malnutrition rates, none
of which are captured y GDP.
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GNPGross National Product%
is the market value of all final goods and services
produced y permanent residents of a country in a given
period of time
GNP = GDP + net factor income from abroad
GNP 2 $ncome earned y domestic residents
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3n estimated value of the total worth of
production and services, y citi4ens of a country, on
its land or on foreign land, calculated over the course
on one year.
)#penditure 3pproach to calculating GNP%
GNP = GDP + NR
NR = (Net income rom !ssets !"ro!d (Net Income
Receipts)).
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GNPstands for Gross National Product.
$n general terms, GNP means the total of all usiness
production and service sector industry in a country plus its gain
on overseas investment.
This gives a far more realistic picture than the income of
foreign nationals in the country as it is more reliale and
permanent in nature.
Gross National Product can also e calculated on a per
capita asis to demonstrate the consumer uying power of an
individual from a particular country, and an estimate of average
wealth, wages, and ownership distriution in a society.
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Applications of GDP and GNP
GDP and GNP figures are oth calculated on a per
capita asis to give a portrait of a country0s economic
development.
GDP !or Gross Domestic Product" may e compared
directly with GNP !or Gross National Product", to see the
relationship etween a country0s e#port usiness and local
economy
3 region0s GDP is one of the ways of measuring the si4e
of its local economy whereas the GNP measures the
overall economic strength of a country
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$ncrease in e#ports of a country will lead to increase in
oth GDP and GNP of the country. orrespondingly,
increase in imports will decrease GDP and GNP. 5owever,
sometimes increase in e#ports might only lead to increase
in GDP and not GNP.
).g. if Microsoft orporation has a &667 owned
susidiary in $ndia, and that office e#ports
89:( /illion worth of services out of $ndia, then 89:(/illion will e added to the GDP of $ndia. 5owever, it will
not e added to the GNP figure since the e#port is done y
a 89 company and not an $ndian company.
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Particulars GDP GNP
Stands for: Gross Domestic Product Gross National Product
Definition:
3n estimated value of the totalworth of a countrysproduction and services,within its oundary, y its
nationals and foreigners,calculated over the course onone year.
3n estimated value of the totalworth of production andservices, y citi4ens of a
country, on its land or onforeign land, calculated overthe course on one year.
Formula forCalculation:
GDP 2 consumption ;
investment ; !governmentspending" ; !e#ports