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Assignment 2 - Calculating Net Domestic Product

The document discusses two methods for calculating Net Domestic Product: the expenditure method and the value-added method. It provides formulas and step-by-step calculations using sample economic data. Using the expenditure method, Net Domestic Product at Factor Cost is calculated as 1130 crore rupees. Using the value-added method, National Income is calculated as 1150 crore rupees.

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parth limbachiya
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32 views

Assignment 2 - Calculating Net Domestic Product

The document discusses two methods for calculating Net Domestic Product: the expenditure method and the value-added method. It provides formulas and step-by-step calculations using sample economic data. Using the expenditure method, Net Domestic Product at Factor Cost is calculated as 1130 crore rupees. Using the value-added method, National Income is calculated as 1150 crore rupees.

Uploaded by

parth limbachiya
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Economics and Management Decisions

Assignment 2 | Calculating Net Domestic Product

To calculate the Net Domestic Product at Factor Cost by the Expenditure Method and
National Income by the Value-Added Method, we can use the following formulas:

Given Data:

C = 900 Value of output of


I = 250 Primary sector = 900
G = 100 Secondary sector = 800
X-M = 50 Tertiary sector = 400
Consumption of fixed capital 80cr. Value of intermediate consumption by:
Indirect taxes 100 cr. Primary sector = 400
Subsides 10 cr. Secondary sector = 300
Net factor income from abroad 20cr. Tertiary sector = 100
Where:

 C is Private Final Consumption Expenditure,


 I is Domestic Capital Formation (Investment),
 G is Government Final Consumption Expenditure,
 X-M is Net Exports

Calculation of the NDPFC by Expenditure Method, step by step is follows:

1. Gross Domestic Product at Market Price (GDPMP):

GDPMP = C + I + G + (X - M)

GDPMP = 900 + 250 + 100 + (50) = 1300

2. Subtracting Depreciation, Indirect Taxes and Subsidies to get Net Domestic Product at
Factor Cost (NDPFC):

NDPFC = GDPMP – (Indirect Taxes – Subsidies) - Depreciation

NDPFC = 1300 - 90 - 80 = 1130

Hence, Net Domestic Product at Factor Cost (NDPFC) by the Expenditure Method is 1130
crore rupees.
Calculation of the NNPFC by Value added Method, step by step is follows:

1. Calculating Gross Value Added in each sector:

Gross Value Added = Value of Output -Intermediate Consumption

- For the Primary sector:

Gross Value Added Primary = 900 - 400 = 500

- For the Secondary sector:

Gross Value Added Secondary = 800 - 300 = 500

- For the Tertiary sector:

Gross Value Added Tertiary = 400 - 100 = 300

2. NNPFC (National Income) by Value added Method:

GDPMP = Gross Value Added in the Primary sector + Gross Value Added in the
Secondary sector + Gross Value Added in the Tertiary sector

GDPMP = 500 + 500 + 300 = 1300

NNPFC = GDPMP – DEP + NFIA – NIT

Where,

DEP = 80

NFIA = (20 – 0) = 20

NIT = (Indirect Tax – Subsidy) = (100 – 10) = 90

Therefore,

NNPFC = 1300 – 80 + 20 – 90 = 1150

Hence, National Income by Value Added Method is 1150 cr.

-Parth Vishnukumar Limbachiya

STUDENT ID: Jul-23.MBA-OG10

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