|Table of contents|
|Gross Domestic Product (GDP)|
|Gross National Product (GNP)|
|Net National Product (NNP) at Market Price|
|Net National Product (NNP) at Factor Cost (National Income)|
|Measurement of National Income|
|Difficulties in The Measurement of National Income|
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Gross Domestic Product (GDP) is the total market value of all final goods and services currently produced within the domestic territory of a country in a financial year.
Four things must be noted regarding this definition.
First, it measures the market value of annual output of goods and services currently produced. This implies that GDP is a monetary measure.
Secondly, for calculating GDP accurately, all goods and services produced in any given year must be counted only once so as to avoid double counting. So, GDP should include the value of only final goods and services and ignores the transactions involving intermediate goods.
Thirdly, GDP includes only currently produced goods and services in a year. Market transactions involving goods produced in the previous periods such as old houses, old cars, factories built earlier are not included in GDP of the current year.
Lastly, GDP refers to the value of goods and services produced within the domestic territory of a country by nationals or non-nationals.
Gross National Product is the total market value of all final goods and services produced in a year.
NNP is the market value of all final goods and services after providing for depreciation.
NNP at factor cost or National Income is the sum of wages, rent, interest and profits paid to factors for their contribution to the production of goods and services in a year.
Personal income is the sum of all incomes actually received by all individuals or households during a given year.
This method arrives at national income by adding up all the expenditure made on goods and services during a year. Thus, the national income is found by adding up the following types of expenditure by households, private business enterprises and the government:
GDP = C + I + G + (X – M).
There are many difficulties in measuring national income of a country accurately. The difficulties involved are both conceptual and statistical in nature. Some of these difficulties or problems are discuss below: The first problem relates to the treatment of non-monetary transactions such as the services of housewives and farm output consumed at home. On this point, the general agreement seems to be to exclude the services of housewives while including the value of farm output consumed at home in the estimates of national income.