National Income, GDP, NDP, GNP, NNP and Inflation

National Income

Income is the most frequently used term in Economics. Income level is the most useful tool which is used to determine the standard of living of the people in a Country. Actual meaning of National income is monetary value of all final goods and services produced by the residents of a Country. To calculate net national product, depreciation of plant and machinery used in the production process is deducted.

National income is calculated for a particular period, normally a financial year (In India, financial year means April 1 to March 31 of next year). Net factor income from abroad is added to the domestic product to get the value of National Income.

Where,

C = Total consumption expenditure
I = Total investment expenditure
G = Total government expenditure
X – M = Export - Import

Different concepts of National Income

Gross Domestic Product (GDP)

Gross domestic product is the value of all final goods and services produced within the boundary of a nation during one year. In India one year means from 1st April to 31st March of the next year.
GDP calculation includes income of foreigners in a Country but excludes income of those people who are living outside of that country.

Net Domestic Product (NDP)

NDP is calculated by deducting the depreciation of plant and Machinery from GDP.

Gross National Product (GNP)

GNP is the value of all final goods and services produced by the residents of a country in a financial year (i.e., 1st April to 31st March of the next year in India).

While Calculating GNP, income of foreigners in a country is excluded but income of people who are living outside of that country is included. The value of GNP is calculated on the basis of GDP.

Where,

X = income of the people of a country who are living outside of the Country
M = income of the foreigners in a country

Net National Product (NNP)

Net National Product (NNP) in an economy is the GNP after deducting the loss due to depreciation.

NNP at Factor Cost:

It is the value of NNP when the value of goods and services is taken at the production cost.

NNP at Market Price:

It is the value of NNP at consumer cost.

Inflation

Inflation means Expansion of money or increase in supply of money in the economy. Actual meaning of inflation is increase in money supply faster than the growth in real national income.
In inflation money supply increases faster than the demand of money in the market, so money loses its value due to oversupply of money and this causes rise in price.

Reason behind Inflation

In developed countries, expansion of money supply is the most important reason of inflation. But in developing countries like India, monetary reason is one of the reasons.

Some more important reasons are:

1. The most common reason of inflation in all types of Economy is Deficit financing. The Government of a country tries to grow the Economy of its country and spends more for this cause. As a result the process ends up incurring deficit financing.
2. When public expenditure increases but the supply of goods does not then the inflationary price rises in the economy.
3. One of the reasons of inflation is fast growing population in a country.
4. The large inflow of foreign currency in a country is also an important reason of inflation. Especially when the inflow is faster than the absorption capacity of the economy of a country then the inflationary problem arises.
5. When per capita income increases then demand of various goods in the market also increases and it also becomes one of the reasons of inflationary problems.