Macro - Economics

GDP AT FACTOR COST & MARKET PRICE

Presented By: Group 1 Abhishek Alan Aman Ankit Ankur Anu Sikka
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OUTLINE
A Distinguish GDP at factor cost from GDP at market price. Calculate the difference between the two for India from 199697 to 2008-09.

B What is the difference between gross domestic product (GDP) and gross national product (GNP)? Which is higher for India and why? Calculate the difference from 1996 07 to 2008 09.
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A - DIFFERENCE BETWEEN GDP AT FACTOR COST FROM GDP AT MARKET PRICES.

There is one important difference that arises when calculating the level of GDP from the spending side of the economy rather than summing the values added in production. This difference arises because the price paid by consumers for many goods and services is not the same as the sales revenue received by the producer. There are taxes that have to be paid, which place a wedge between what consumers pay and producers receive. For example: Taxes attached to the transactions are known as indirect taxes. Thus, if a consumer pays $100 for a meal in a restaurant the owner may receive only $85.10, the remaining $14.90 will go to the government in the form of VAT.

The term factor cost or basic price is used in the national accounts to refer to the prices of products as received by producers. Market prices are the prices as paid by consumers. Thus, factor cost or basic prices are equal to market prices minus taxes on products plus subsidies on products.
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FOR EXAMPLE

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DIFFERENCE BETWEEN GDP AT FACTOR COST AND GDP AT MARKET PRICE SINCE 05-06
GDP at factor cost (Rs.) 3254216 3566011 3898958 4162509 GDP at Market Price (Rs.) Difference (Rs.) 438269 727661 1087468 1420114

Year 05-06 06-07 07-08 08-09

3692485 4293672 4986426 5582623

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B - DIFFERENCE BETWEEN GDP & GNP?

Gross National Product and Gross Domestic Product are both measures of economic development. When we calculate the estimated value that defines the worth of any countrys services provided and production carried out over a whole year, then you refer to it as that countrys GDP. On the other hand, GNP refers to the GDP added to the total amount of capital gain from all investments made abroad with the amount of income that has been earned by foreign nationals in that country subtracted from the total. Meanwhile, the formula to calculate GDP is addition of consumption, investment, government spending, exports with imports subtracted from the total. Both terms are used in the sectors of finance, business and forecasting of economic trends. But while, GDP captures an image of the domestic economic strength of a country, GNP captures an image of how the nationals of a particular country are faring financially. GNP ignores the production area but focuses totally on the nationals of a particular country and businesses and industries owned by them irrespective of where they are located.

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B - DIFFERENCE BETWEEN GDP & GNP?

Further, GDP is also taken into account on the basis of the current prices in the period being studied. It includes three variants which are: Nominal GDP: is the production of services and goods that are valued at the current price prevalent in the market.

Real GDP: is the production of good and services that are valued at constant prices and are not affected by market fluctuations. This calculation helps economists to figure out if production in a country has improved or not without any reference to how the purchasing power of the countrys currency has changed.
In countries where there is very high foreign investment, the GDP is always much higher than the GNP

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GDP Vs GNP (India) :1996-2009

Amt in Billion USD Year 1996 1997 1998 1999 2000 2001 2002 GDP 388.34 410.9152 416.2524 450.4762 460.182 477.8489 507.19 GNP 390.7402 405.1602 415.1326 443.9141 458.0762 478.5547 492.565 Difference (GDP-GNP) -2.40 5.755 1.1198 6.5621 2.1058 -0.7058 14.625 Higher GNP GDP GDP GDP GDP GNP GDP

2003
2004 2005 2006 2007 2008 2009

599.4614
720.909 837.1952 949.1916 1232.816 1214.212 1310.171

567.6328
686.9874 823.0947 944.0861 1116.926 1235.292 1367.105

31.8286
33.9216 14.1005 5.1055 115.89 -21.08 -56.934

GDP
GDP GDP GDP GDP GNP GNP

B WHICH IS HIGHER FORT INDIA?

The biggest reason why the GNP of India is greater than the GDP in 2008 & 2009 is that; these were the recession years, the foreign investments in India reduced considerably and as we know that the value of goods produced by foreign owned businesses in India would be counted in India's GDP, there were less goods produced through foreign investments in India during the recession years.
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GDP VS GNP (INDIA): 1996 - 2009

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