MBA
Economics and Management Decisions
Contents
1.
Case Study 2 .................................................................................................................................... 1
1.1.
Net Domestic Product by Expenditure Method................................................................ 2
1.1.1.
Gross Domestic Product (GDP) in Market Price ..................................................... 2
1.1.2.
Net Domestic Product (NDP) in Market Price .......................................................... 2
1.1.3.
Net Domestic Product at factor cost by expenditure method ................................ 2
1.2.
Estimation of National income by the value-added method .......................................... 3
1.2.1.
Gross value added (GVA) for Primary sector .......................................................... 3
1.2.2.
Gross value added (GVA) for Secondary sector ..................................................... 3
1.2.3.
Gross value added (GVA) for Tertiary sector........................................................... 3
1.2.4.
Estimation of Gross Domestic Product (GDP)in market price ............................... 3
1.2.5.
Estimation of Gross National Product (GNP) in market price................................ 4
1.2.6.
Estimation of Net National Product (NNP) in market price .................................... 4
1.2.7.
Estimation of Net National Product (NNP) at factor cost........................................ 4
1.3.
Final Answers ....................................................................................................................... 4
1. Case Study 2
Calculate net domestic product at factor cost by expenditure method and national income by the
value-added method by using the following data:
1. Domestic capital formation 250 cr.
2. Net Exports 50cr.
3. Private final consumption expenditure 900 cr.
4. Value of output of
(a) Primary sector
900
(b) Secondary sector 800
(c) Tertiary sector 400
5.
6.
7.
8.
9.
10.
Value of intermediate consumption by:
(a) Primary sector
400
(b) Secondary sector 300
(c) Tertiary sector 100
Consumption of fixed capital 80cr.
Indirect taxes 100 cr.
Government final consumption expenditure100 cr.
Subsides 10 cr.
Net factor income from abroad 20cr.
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MBA
Economics and Management Decisions
1.1.
Net Domestic Product by Expenditure Method
The net domestic product is defined as the net value of all the goods and services produced within a
country’s geographic borders. It is considered a key indicator of economic growth of a country.
1.1.1.
Gross Domestic Product (GDP) in Market Price
GDP is one of the most important concepts in national income. It is the sum of all goods and
services produced in a country in a given year, measured in terms of monetary value.
As per the expenditure approach, GDP is described as the sum of consumption, Investment,
government expenditure and net foreign exports of the country during a year.
GDP at market price = C+I+G+(X-M)
Where,
C- denotes consumption, I- denote investment, G-denotes government expenditure, (X – M)
denotes export minus import.
Consumption (C)
Investment (I)
Private final
consumption
expenditure
900 cr
Consumption of
fixed capital
Total
80 cr
980 cr
Domestic capital
formation
Expenditure(G)
250 cr
Government
final
consumption
expenditure
250 cr
X-M (Exports- Imports)
100 cr
Net
Exports
100 cr
50 cr
50 cr
GDP at market price = 980+250+100+50
Gross Domestic Product (GDPMP)= 1380 Cr
1.1.2.
Net Domestic Product (NDP) in Market Price
The net domestic product (NDP) is calculated by subtracting the value of depreciation of capital
assets of the nation such as machinery, housing, and vehicles from the gross domestic product
(GDP).
NDP at market price = GDP at market price - Depreciation (Consumption of fixed capital)
=1380- 80
Net Domestic Product (NDP MP) = 1300 cr
1.1.3.
Net Domestic Product at factor cost by expenditure method
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MBA
Economics and Management Decisions
NDP at factor cost = NDP at market prices- Indirect taxes+ Subsidies
= 1300- 100+10
Net Domestic Product at factor cost (NDP FC) = 1210 cr
1.2.
Estimation of National income by the value-added method
(a) Value of output
Here output means final goods as well as intermediate goods. The value of all these
goods can be estimated by multiplying the quantity of output of each producing unit
with the market price. This is equal to the value of sales and the change in stock.
(b) Value of intermediate consumption
The goods and services used by the firms as inputs are known as intermediate
consumption. To calculate the value of intermediate consumption, we have to
multiply the intermediate goods with the prices paid by the enterprises to purchase
these goods.
(c) Consumption of fixed capital
Consumption of fixed capital means depreciation. When goods are produced, there is
wear and tear of machines leading to the loss of value of the capital assets. To
calculate this loss of value in an accounting period, we have to deduct the value of
capital asset at the end of the period from the value of the asset at the beginning of
the period.
1.2.1. Gross value added (GVA) for Primary sector
Gross value added by Primary sector (GVA) = Value of output – Intermediate consumption
= 900-400 = 500
GVA Primary = 500
1.2.2. Gross value added (GVA) for Secondary sector
Gross Value Added by Secondary Sector = Value of output– Intermediate consumption
=800-300 = 500
GVA Secondary= 500
1.2.3. Gross value added (GVA) for Tertiary sector
Gross Value Added by tertiary Sector = Value of output– Intermediate consumption
400-100 = 300
GVA Tertiary= 300
1.2.4. Estimation of Gross Domestic Product (GDP)in market price
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MBA
Economics and Management Decisions
Add GVA of all the three sectors, i.e., primary, secondary, and tertiary, to get the GDP of the economy.
GDP in market price= Gross value added by Primary sector+ Gross Value Added by Secondary Sector+ Gross
Value Added by tertiary Sector
= 500+500+300
Gross Domestic Product (GDPMP)=1300 cr
1.2.5. Estimation of Gross National Product (GNP) in market price
GNP can be calculated by adding Net Factor Income from Abroad to the Gross Domestic Product (GDP) or
alternatively by arriving at the sum total of Consumer Goods and services, Investment in Capital Goods,
Government Expenditure, Net Exports and Net Factor Income from Abroad.
Net factor income from abroad (NFIA) is added with GDP to get the GNP.
GNP = GDP+ Net factor income from abroad (NFIA)
= 1300+ 20
Gross National Product (GNP MP) =1320 cr
1.2.6. Estimation of Net National Product (NNP) in market price
NNP is the entire amount of movement of products and services at market value in a country during a year
after allowing for depreciation. It is also known as the National Income at market price.
NNP or NI in market price= GNP- Depreciation (Consumption of fixed capital)
= 1320-80
Net National Product (NNP MP) = 1240 cr
1.2.7. Estimation of Net National Product (NNP) at factor cost
Net National Product (NNP) in also known as National Income.
NNP at factor cost = NNP at market prices- Indirect taxes+ Subsidies
=1240-100+10
National Product (NNP FC ) or national income (NI FC ) = 1150 cr
1.3.
Final Answers
i.
Net Domestic Product at factor cost (NDP FC) = 1210 cr
ii.
National Product (NNP FC) or Nation Income at factor cost = 1150 cr
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