Net National Product (NNP)
by While producing goods etc. there is a depreciation of machines and plants etc. again the houses, factories and stories also become prey to wear and tear. Therefore, there is a need of repair of machinery, plants, houses and factories.
While producing goods etc. there is a depreciation of machines and plants etc. again the houses, factories and stories also become prey to wear and tear. Therefore, there is a need of repair of machinery, plants, houses and factories. Accordingly, whatsoever is borne by the firms regarding the replacement of machines etc. is known as depreciation allowances from GNP. The depreciation allowances are also know as replacement costs or capital consumption costs. Thus, NNP is written as
NNP = GNP – depreciation
(capital consumption allowances)
The GNP from aggregate expenditures method is written as
GNP = C + Ig + G + Xn
where Ig = gross investment
and Xn = net income from exports
Hence NNP will be as
NNP = C + Ig + G + Xn – D
where D = depreciation allowances
As In = net investment. Accordingly, if we subtract depreciation allowances from gross investment (Ig) e will get In. Hence, above NNP equation can be written as
NNP = C + In + G + Xn
National Income (NI)
The NNP is the summation of market values of all the goods produced and services provided in a country in a year. But NNP does not show what actually has been earned by the countrymen during a year. In NNP the business taxes are also included. Such taxes do not represent the incomes of the people. Accordingly, to know NI we will have to subtract the indirect taxes and add subsidies in NNP. It is shown as
PI = NI + R – PT – UP
where PT = taxes on profits, R = transfer payments
and UP = undistributed profits
Personal Income (PI)
NI does not show how much amounts are possessed by the people. There are the persons who get incomes without rendering their services. As the case of transfer payments like pensions, unemployment allowances, social security allowances and stipends, etc. On the other side, it may also happen that despite offering the services some people remain deprived of the payment. It is the case of taxes on profits, welfare deductions ans undistributed profits. Accordingly, if we include transfer payments and subtract undistributed profits, etc. from NI we get personal income. It is as
PI = NI + R – PT – UP
where PT = taxes on profits, R = transfer payments
and UP = undistributed profits
Personal Income (PI)
If personal taxes are subtracted from personal income we get DPI. It is as
Yd = DPI = PI – TP = C + S
where TP = personal taxes, Yd = DPI
Gross Domestic Product (GDP)
if we subtract the income earned through foreign services, we get GDP. It is as
GDP = GNP – FI
where FI = Foreign income.
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