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2.3 S OME M ACROECONOMIC IDENTITIES Gross Domestic Product measures the aggregate production of final goods and services taking place within the domestic economy during a year. But the whole of it may not accrue to the citizens of the country. For example, a citizen of India working in Saudi Arabia may be earning her wage and it will be included in the Saudi Arabian GDP. But legally speaking, she is an Indian. Is there a way to take into account the earnings made by Indians abroad or by the factors of production owned by Indians? When we try to do this, in order to maintain symmetry, we must deduct the earnings of the foreigners who are working within our domestic economy, or the payments to the factors of production owned by the foreigners. For example, the profits earned by the Korean-owned Hyundai car factory will have to be subtracted fromtheGDPofIndia. The macroeconomic variable which takes into account such additions and subtractions is known as Gross National Product The foreigners have a share in your domestic economy. (GNP). It is, therefore, Discuss this in the classroom. defined as follows GNP ≡ GDP + Factor income earned by the domestic factors of production employed in the rest of the world – Factor income earned by the factors of production of the rest of the world employed in the domestic economy Hence, GNP ≡ GDP + Net factor income from abroad (Netfactorincomefromabroad=Factorincomeearnedbythedomesticfactors of production employed in the rest of the world – Factor income earned by the factors of production of the rest of the world employed in the domestic economy). 25 We have already noted that a part of the capital gets consumed during the N year due to wear and tear. This wear and tear is called depreciation. Naturally, a depreciation does not become part of anybody’s income. If we deduct n l depreciation from GNP the measure of aggregate income that we obtain is called c Net National Product (NNP). Thus m NNP ≡ GNP – Depreciation A c It is to be noted that all these variables are evaluated at market prices. u Through the expression given above, we get the value of NNP evaluated at i market prices. But market price includes indirect taxes. When indirect taxes g are imposed on goods and services, their prices go up. Indirect taxes accrue to the government. We have to deduct them from NNP evaluated at market prices in order to calculate that part of NNP which actually accrues to the factors of production. Similarly, there may be subsidies granted by the government on the prices of some commodities (in India petrol is heavily taxed by the government, whereas cooking gas is subsidised). So we need to add subsidies to the NNP evaluated at market prices. The measure that we obtain by doing so is called Net National Product at factor cost or National Income. Thus, NNP at factor cost ≡ National Income (NI ) ≡ NNP at market prices – (Indirect taxes – Subsidies) ≡ NNP at market prices – Net indirect taxes (Net indirect taxes ≡ Indirect taxes – Subsidies) Reprint 2026-27