What is GDP and GNP and Methods to calculate it

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What is GDP and GNP and Methods to Calculate it

In this article we will know what is GDP and how it is calculated. In the next parts of this article we will discuss about how NNP, NDP, GNP, GDP, NNPFC, NNPMP are different from each other. We will also discuss what the GDP at constant price and GDP at current price are. By the way, all the notes related to Economics are being added on this page, which you cannot afford to miss. By the way, you can find all the notes of Economics on this page.

Gross Domestic Product 

All those things which are produced inside the country or within the country economic value.
Here, Domestic means within the country and all things means both goods and services.

Gross National Product (GNP)

All those things which are produced inside the country PLUS income which have come from outside, their economic value.
Suppose, a person named 'A' brought the money abroad to America, to our country India = counted in GNP.
On the other hand, 'B' sends money to Pakistan to sing in India so that his family can be maintained, this earned money.
We have to subtract it from India's GNP (while Pakistan will count it in its GNP).

Similarly, while counting GNP of our country, 'A' will reduce the amount of money earned in concert by the total GNP.

Now if we want to make a native GNP formula by ourselves, what should happen?

Gross National Product = the money value of all things produced inside the country + Money coming from outside - Outgoing money.
or
GNP = GDP + Money coming from outside - Outgoing money.

Methods to Calculate GDP

There are three methods to calculate GDP-
  • Expenditure method
  • Income Method
  • Production Method

Expenditure Method

Under this we add all the money that is spent by us.
But how to form it into a technical formula? Ask yourself

↣Consumption (C) Consumption by general public
As you and your friends are eating and buying Lollipop in Big Bazaar, its expenses will be added.
I buy your second hand bike, will it count in consumption? 
No. Because this bike is not going to produce again, we need first price of a good.

When you bought that bike 10 years ago in 30 thousand, then we had counted this amount in the GDP of that country. Therefore, its value will not be counted again at the time of GDP counting.
Now if I buy your bike from an auto dealer (who got a thousand rupees in commission), will it count in the GDP of the country? 
Yes, it would be because he sold its service to me. Whenever he will sell a second hand product, although there will be no new product created, he will definitely create new service every time.

But what will happen if the dealer spends one thousand rupees received in commission for his expenses? For example, if he has to pay a thousand rupees electricity bill, should we conclude that -
That thousand rupees went from one place to another, so our GDP will remain the same = Rs 1000?
No
GDP = all the things (goods + services) that are produced inside the country, domestic in the country, their economic value (money value)

That is why brokerage service is Rs 1000. Will be counted separately and electricity bill of 1000. separately.=> GDP = 1000 Rs. Brokerage +1000 Rs. Electricity bill = Rs 2000
Electricity bill company Rs 1000 to its PUNE. Will give salary So salary will also count separately in GDP.
Now,GDP = Rs 1000 Brokerage +1000 Rs. Electricity Bill + 1000 Rs. = Rs 3000

↣Investment (I)
People who put money in the bank, invest in share market, etc.

↣Government spending (G)The government pays salaries to the staff, buys military goods, spends on government buildings etc.
↣Export and Import [X and M]
The money they get from exports will be added.

Do you remember, GDP means all the things that are produced inside the country inside the country their economic value (money value) that’s why if we import i.e. other.
If you buy something from the country, it will be deducted from GDP because the goods taken from outside have not been produced inside the country.

GDP = Consumer + Investor + Government + (Export – Import)

or

How to calculate GDP


Income Method

Under this, you will count the income of all. But there will be some people who are running their business on credit, or someone is getting late payment, so this method is not sustainable.

Production Method

The economic value of everything that is produced (Value added at each stage)
The farmer produces wheat of 100 kg and sells at Rupees 2000
The flour mill bought it, crushed it and a bakery owner got 2500 rupees. Sold in (+500 from the previous purchase added)
The bakery person made his bread, made the biscuits and sold us @ 3500 rupees. In (+1000 added from last purchase)

So what is the total GDP?
2000 + 2500 + 3500 = 8000
Therefore, the total money value = 2000 + 500 + 1000 = 3500.

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