GDP is one of the basic indicators of overall health of an economy. It provides the measure of aggregate output and its comparison over time indicates the rate of growth in the economy. GDP means the gross value of all final goods and services produced in an economy during a year. It is a measure of the total flow of goods and services produced by the economy annually. It is estimated by multiplying the quantity of gods and services produced by market price per unit. While computing gross domestic product, all intermediate goods or half-finished goods are excluded and the goods used for final consumption and investment goods are included. This is so because the value of intermediate goods is already included in the value of final goods. No deduction is made for the expenditure on capital goods for replacement purposes, hence the word ‘gross’. The word ‘domestic’ means incomes arising from investments and possessions owned abroad are not included. This measure is often called gross domestic product at market prices because adjustment is made for indirect taxes, and subsidies. Therefore, GDP is not equal to value of incomes paid to factors of production.
- Gross Domestic Product at Factor Cost: This measure is equal to total incomes paid to factors of production. It is estimated by subtracting the total indirect taxes and adding subsides to the GDP at market price. Thus,
GDP at factor cost = GDP at market prices – Indirect taxes + Subsidies
- Gross National Product (GNP): It means GDP plus incomes accruing to domestic residents arising investment abroad less income earned in the domestic market accruing to foreigners abroad. When all indirect taxes and subsidies are exclude from GNP at market prices, we get GNP at factor cost which is a measure of national output.
- Net National Product (NNP): NNP or Net Domestic Product (NDP) is computed by subtracting depreciation from the gross domestic product. NNP at market prices included indirect taxes (which increase price) and subsidies (which decrease price). National income can be computed by removing indirect taxes and subsidies from NNP.