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i) GDP and GNP: The first pair of the national aggregates in the form of Gross Domestic Product and Gross National Product values. The value GDP is the result of all productive activities carried out within the country. Therefore GDP is a geographic concept. By and large we are primarily interested in the GDP value. But in modern times there are large-scale international transactions taking place between countries as well. Citizens of a country like technicians, doctors, lawyers, bankers etc. go abroad and earn considerable incomes. This should genuinely form part of the national income of a country. But it is not earned within the territory of the country and hence is not included in the GDP. If we want to compute GNP such income (N) earned abroad will have to be added to GDP. On the contrary foreign citizens may be working inside the country and contributing to the value of the GDP. Since they are not the nationals their contributions (F) will have to be deducted to arrive at an accurate value of the GNP. In other words net of the income earned abroad (N-F) when adjusted to the GDP gives the GNP.

GDP + (N -F) = NNP

For example, assume the values of GDP, N and F as 1780, 230, 310 respectively. Then,

GNP = 1700

GDP + N - F = GNP

1780 + 230 - 310 = 1700

On the other hand, if we begin with GNP then the reverse operation will be necessary.


1700 - 230+310 = 1780

Note that GNP will be more or less than GDP according to relative amounts of N and F. If N will be greater than F then GNP would be greater than GDP but if N will be less than F, GNP will be smaller than GDP (Hence GNP < GDP).

ii) GNP and GNI: Whereas Gross National Product (GNP) is the total of the market price values of all goods and services, Gross National Income (GNI) is the aggregate income received by all members of the society engaged in productive activities. Whenever goods are produced and sold, the total yield gets distributed among various agents of production. There are theoretically four such categories which contribute to productive activity and receive income. The four shares in the income are profits of the producer (P), wages of the labor (W), rent of the owner of land and natural resources (R) and interest payment on loans and capital transactions (i).

Therefore the value of GNI can be stated as : GNI W + R + P + I

For every income generated, there is some corresponding productive activity performed and vice versa. Therefore, the two values GNI and GNP must be conceptually identical.


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3. 1 Macro Aggregates
3.2 Unemployment
3.3 Inflation

Chapter 4

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