GDPMP = Private Final Consumption + Government Final Consumption Expenditure + Gross Domestic Capital Formation + Net Exports (Exports – Imports)

Net Domestic Product (NDP) is also arrived from GDP by making adjustment with regard to depreciation 
GDP - Depreciation = NDP

(i) Gross National Product (GNP)
(ii) Gross Domestic Product (GDP)
(iii) Net National Product (NNP)
(iv) Net Domestic Product (NDP)

(i) NNP is obtained deducting the value of depreciation from GNP.
(ii) NNP = GNP - depreciation allowance.

\(\mathrm{GNP}=\mathrm{C}+\mathrm{I}+\mathrm{G}+(\mathrm{X}-\mathrm{M})+(\mathrm{R}-\mathrm{P})\) or \(\mathrm{GNP}_{\mathrm{MP}}=\mathrm{GDP}_{\mathrm{MP}}\) + Net Factor income from Abroad.

1. Imputed value of rent for self occupied houses or offices is to be included.
2. Imputed value of services provided by owners of production units (family labour) is to be included.

1. Transfer payments are not to be included in estimation of national income as these payments are not received for any services provided in the current year such as pension, social insurance etc.
2. The receipts from the sale of second hand goods should not be treated as part of national income as they do not create new flow of goods or services in the current year.
3. Windfall gains such as lotteries are also not to be included as they do not represent receipts from any current productive activity.
4. Corporate profit tax should not be separately included as it has been already included as a part of company profit.

1. The enterprises are classified into various industrial groups.
2. Factor incomes are grouped under labour income, capital income and mixed income.
i) Labour income - Wages and salaries, fringe benefits, employer’s contribution to social security.
ii) Capital income – Profit, interest, dividend and royalty
iii) Mixed income – Farming, sole proprietorship and other professions.
3. National income is calculated as domestic factor income plus net factor incomes from abroad.

(i) The total expenditure incurred by the society in a particular year is added.
(ii) It includes personal consumption expenditure (C), net domestic investment (I), Government expenditure on consumption and capital goods (G) and net exports (X - M).
\(\mathrm{GNP}=\mathrm{C}+\mathrm{I}+\mathrm{G}+(\mathrm{X}-\mathrm{M})\)
(iii) Second hand goods, purchase of shares and bonds, transfer payments and expenditure on intermediate goods must not be included.

S.No	Personal Income	Disposable Income
1	It is the total income received by the individual before payment of direct taxes in a year	It is the individual's income after the payment of income tax
2		Disposable income = Personal income - Direct tax

(i) The economic welfare depends upon the composition of a goods and services provided.
(ii) Higher GDP with greater environmental hazards such as air, water and soil pollution will be little economic welfare.
(iii) The production of war goods will show the increase in national output but not welfare.
(iv) An increase in per capita income may be due to. employment of women and children Dr forcing workers to. work for long hours. But it will not promote economic welfare.
(v) Therefore the physical quality of life index (PQLI) is considered a better indicator of economic welfare.

Product Method:
(i) Product method measures the output of the country. It is also called inventory method.
(ii) It is obtained for the entire economy during a year.
(iii) The value obtained is actually the GNP at market prices.
(iv) Care must be taken to avoid double counting.
(v) The value of the final product is derived by the summation of all the values added in the productive process.
(vi) To avoid double counting either the value of the final output should be taken in to the estimate of GNP.
(vii) In India the gross value of the farm output is obtained as follows.
(1) The output of each crop is measured by multiplying the area shown by the average yield per hectare.
(2) The total output of each commodity is valued at market prices.
(3) The net value of the agriculture output is measured by making deductions for the cost of seed, manures and fertilisers etc.,
(4) Net value of the output in these sectors is derived by making deductions for cost of materials used in the process of production and depreciation allowances etc., from gross value of output,
(5) For example, value of cotton enters value of yarn as cost and value of yarn in cloth and that of cloth in garments at every stage value added only should be calculated.

Introduction:
(i) In India there exists a large unorganized and non-monetised subsistence sector where barter system prevails. So proper valuation of output is very difficult. The difficulties are:
Transfer payments:
(i) Government makes transfer payments like pensions, unemployment allowance, subsidies. They are not included in national income because they are paid without adding anything to the production processes.
Difficulties in assessing depreciation allowance:
(i) High degree of judgement is needed to assess the depreciation allowances and accidental damageś, repair and replacement charges.
Unpaid services:
(ii) Housewife's services like preparation of meals, bringing up children are not directly included in national income. But such services performed by paid servants are included in NI. Rendering services to their friends, painting, singing, also cannot be measured in monetary terms. It is done out of love.
Income from illegal activities:
(i) Income from illegal activities like gambling, smuggling is not included in national income.
(ii) Though these activities have value yet they are not considered as productive from the society point of view.
Production for self - consumption and changing price:
(i) Farmers keep a large portion of food and other goods produced on the farm for self consumption
(ii) The problem is whether that part of the produce which is not sold in the market can be-included in NI or not.
(iii) National income by product method is measured by the value of final goods and services at current market prices. But prices do not remain stable.
Capital Gains:
(i) The problem also arises with regard to capital gains. They must be excluded from NI.
Statistical problems:
(i) There are statistical problems too. Reliable data are not adequate.
(ii) Different languages, customs also create probléms.
(iii) Indians are non-cooperative and indifferent to the official inquiries.
(iv) Statistical staff are untrained and inefficient.
(v) Double counting must be avoided.
Conclusion:
(i) Therefore, national income estimates in our country are not very accurate or adequate. There is at least 10 % percent margin of error.

Introduction:
(i) Whatever is produced is either used for consumption or for saving. So, national output can be computed at any of three levels, ie., production, income and expenditure.
(ii) Therefore there are three methods to measure national income.
Product Method (inventory method):
(i) This method measures the output of the country. Gross value of output from different sectors like agriculture, industry, trade, commerce is obtained by the summation of all the values added in the productive process.
(ii) In India, the gross value of the farm output is obtained as follows:
(iii) Total production of 64 agriculture commodities is estimated. The output of each crop is measured by multiplying the area sown by the average yield per hectare.
(iv) Total output of each commodity is valued at market prices.
(v) The aggregate value of total output of these 64 commodities is taken to measure the gross value of agricultural output.
(vi) The net value of the agricultural output is measured by making deductions for the cost of seed, manures and fertilizers, market charges.
(vii) Net value of each sector is measured in this way.
(viii) Double counting should be avoided.
(ix) Value of output used for self consumption should be counted but sale and purchase of second hand durable goods should be excluded.
Income Method (Factor Earning Method):
(i) National income is calculated by adding up all the incomes generated while producing national product.
(ii) Enterprises are classified into industrial groups.
(iii) Factor incomes are grouped under labour income (wages, salaries, fringe benefits), capital income (profit, interest, dividend) and mixed income (farming, sole proprietorship).
\(\mathrm{Y}=\mathrm{w}+\mathrm{r}+\mathrm{i}+\pi+(\mathrm{R}-\mathrm{P})\)
(iv) Transfer payment, receipt from sale of second hand goods, windfall gains and corporate profit tax must not be included.
(v) Imputed value of rent for self occupied houses or offices and Imputed value of services provided by owners of production units are to be included.
Expenditure method (outlay method):
(i) The total expenditure incurred by the society in a particular year is added together.
(ii) It includes personal consumption expenditure (C), net domestic investment (I), Government expenditure on consumption (G) and net exports (X-M).
\(\mathrm{GNP}=\mathrm{C}+\mathrm{I}+\mathrm{G}+(\mathrm{X}-\mathrm{M})\)
(iii) Expenditure on second hand goods, purchase of shares and bonds, transfer payments and expenditure on intermediate goods should not be included.
Conclusion:
Output = Income = Expenditure
(i) This is because the three methods are circular in nature. So, if the 3 methods are done correctly this equation must hold.