Question

• State the relationship between GDP, net domestic product (NDP), national income (NI), personal income (PI), and disposable income (DI).

Answer 1

Answer : GDP, NDP, NI, PI and DI all are related with each other. We can obtain the value of one from another. GDP shows the market value of all final goods and services for a given year. So,

GDP (Gross Domestic Product) = The market value of all final goods and services for a given year.

NDP = GDP - Consumption of fixed capital. This means that if we subtract the consumption of fixed capital from GDP then we get NDP (Net Domestic Product).

NI = NDP - Statistical discrepancy + Net factor income from abroad. This means that if we subtract the statistical discrepancy from NDP and then add net foreign income then we get NI (National Income).

PI = NI - Production and import tax - Contribution of social security - Corporate income tax - Undistributed corporate profit + Transfer payment. This means that if we subtract the production and import tax, social security contribution, corporate income tax and undistributed corporate profit from NI and then add transfer payment then we get PI (Personal Income).

DI = PI - Personal income tax. This means that if we subtract the personal income tax from PI then we get DI (Disposable Income).

Thus GDP, NDP, NI, PI and DI all are related with each other