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Some Important National Income Accounting Concepts NDP = GDP Capital Consumption Allowances

The equation above means that Net Domestic Product or NDP is equal to the

difference between GDP and Capital Consumption Allowances or (CCAs)

NNP =GNP CCAsThe equation above means that Net National Product or NNP is equal to the

difference (-) between the GNP and CCAs

PS.It is very important to note that the NDP and NNP for a country are two verydifferent concepts. To calculate the NDP macroeconomists subtract the CCAs from

the GDP. However to calculate the NNP macroeconomists subtract the CCAs in aneconomy from the GNP in that economy.

Per Capita NDP =NDP\Population

Per Capita NNP =NNP\PopulationNow to calculate the following indices:NDP@ market price

NDP@ factor cost

NNP@ market priceNNP@ factor cost

Per Capita NDP@ market price

Per Capita NDP@ factor costPer Capita NNP@ market price

Per Capita NNP@ factor cost

NDP@ market price =GDP@ market price CCAs NDP@ factor cost =GDP@ factor cost CCAs NNP@ market price =GNP@ market price CCAs NNP@ factor cost =GNP@ factor cost CCAs Per Capita NDP@ market price = NDP@ market price/Population Per Capita NDP@ factor cost = NDP@ factor cost/Population Per Capita NNP@ market price = NNP@ market price/Population

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Per Capita NNP@ factor cost = NNP@ factor cost/PopulationPS. It is very important to note that the NDP@ market price and the NNP@ marketprice for a country are two very different concepts. Conversely it should also be noted

that the NDP@ factor cost and the NNP@ factor cost for a country are two verydifferent concepts. It is equally true that the NNP@ market price and the NNP@

factor cost are two different concepts. Likewise the NDP@ market price and the

NDP@ factor cost are two different concepts for an economy.

The calculation of each of the concepts NDP@ market price, NDP@ factor cost,

NNP@ market price, NNP@ factor cost, Per Capita NDP@ market price, Per Capita

NDP@ factor cost, Per capita NNP@ market price etc are given in the aboveformulas or equations.

Now lets calculate the following macroeconomic aggregates:

GDP@ market price GDP@ factor cost GNP@ market price GNP@ factor cost

What is GDP@ market price?GDP@ market price =GDP@ factor cost Subsidies + Indirect Taxes

What is GDP@ factor cost?GDP@ factor cost =GDP@ market price + Subsidies -Indirect Taxes

What is GNP@ market price?GNP@ market price =GNP@ factor cost Subsidies + Indirect Taxes

What is GNP@ factor cost?GNP@ factor cost =GNP@ market price + Subsidies - Indirect Taxes

PS. As in the previous cases students should take keen note that the GDP@ marketprice and the GDP @factor cost are not the same macroeconomic aggregates.

Likewise students should note that the GNP@ market price and the GNP@ factorcost are not the same concepts for an economy. Similarly the GDP@ market price and

the GNP@ market price are not identical concepts while the GDP@ factor cost and

the GNP@ factor cost are two distinct aggregates despite their similar calculations.

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Finally students should take careful note that all the above macroeconomic aggregates

@ market prices whether GDP, GNP, NDP or NNP or Per capita GDP, Percapita GNP, Per capita NDP or Per capita NNP include indirect taxes andexclude subsidies. Conversely all the above aggregates @ factor costswhether GDP, GNP, NDP or NNP or Per capita GDP, Per capita GNP, Per capita

NDP or Per capita NNP include subsidies and excludes indirect taxes.Definitions:

Subsidies: are government expenses that are generally extended tobusiness firms, farmers among other groups to defray their production costs or

to reduce prices for consumers. Subsidies are also called negative taxesbecause they impose expenses on government budgets instead of contributing

revenues.

Indirect Taxes: are government revenues that result from taxes that arenot received directly from the earned incomes of households, businesses etc.

Thus sales taxes, highway tolls, excise taxes etc are forms of indirect taxes as

opposed to direct taxes that are extracted from earned incomes.

Market prices: are the prices at which goods and services are sold invarious markets to households and firms. Thus GDP@ market price forexample refers to the total final output of all final goods and services

produced within the national frontiers of a country by its citizens and the

foreign residents who reside within those frontiers that are sold at market

prices in various markets.

Factor costs: are the actual production costs at which goods and servicesare produced by the firms and industries in an economy. Factor costs are

really the costs of all the factors of production such as labor , capital, energy,

raw materials like steel etc that are used to produce a given quantity of output

in an economy. Factor costs are also called factor gate costs since all the coststhat are incurred to produce a given quantity of goods and services take place

behind the factory gate ie within the walls of the firms, plants etc in an

economy. Thus the term GDP@ factor cost refers to the total final outputof all final goods and services produced within the national frontiers of a

country by its citizens and the foreign residents who reside within those

frontiers that are assessed at production or factor cost prior to leaving theirrespective factory gates for various markets where they are bought and sold..

Capital Consumption Allowances: are the total or aggregate costsof the wear and tear or depreciation of the capital stock ie machinery, tools,

plants, roads, power grids, buildings, bus fleet, trains, railways etc within an

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economy usually within a given year. Another name for the CCAs is the

depreciation of capital stock or its depreciation costs.Students are advised to know how to plug numbers into these formulas to calculate

the respective macroeconomic aggregates for the quizzes and tests. PRACTICE ISKEY!