National Income and Related Aggregates
What this domain tests
This domain covers GDP, GNP, NNP, NDP, market price versus factor cost, nominal versus real income, the three measurement methods, value added, and the treatment of transfers and intermediate goods.
Core rules
- GDP is the market value of final goods and services produced within domestic territory in a year.
- GNP = GDP + net factor income from abroad (NFIA).
- NNP = GNP - depreciation; NDP = GDP - depreciation.
- Market price includes indirect taxes and excludes subsidies; factor cost excludes indirect taxes and includes subsidies.
- NNP at factor cost is national income.
- Product method: sum value added; income method: sum factor incomes; expenditure method: sum final expenditures.
- Real GDP uses constant prices; nominal GDP uses current prices. GDP deflator = nominal GDP / real GDP x 100.
Worked example
GDP at market price = 1000, depreciation = 100, NFIA = 20, indirect taxes = 80, subsidies = 30. NDP at market price = 1000 - 100 = 900. NNP at market price = 900 + 20 = 920. NNP at factor cost = 920 - 80 + 30 = 870.
Traps that cost marks
Do not include transfer payments, intermediate goods, or second-hand sales. Depreciation is subtracted, not added. NFIA is added for GNP. Indirect taxes are subtracted and subsidies added to move from market price to factor cost. Do not confuse GDP with GNP or nominal with real.