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National Income and Related Aggregates — Part 2: Aggregates, Real GDP and Welfare

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Lesson

From GDP to national income

Part 2 — the aggregates, real versus nominal GDP, and whether GDP measures welfare.

In this lesson you will

Explain domestic territory, normal residents and net factor income from abroad
Convert between GDP, GNP, NDP and NNP at market price and factor cost
Distinguish real and nominal GDP, calculate the GDP deflator, and evaluate GDP as an index of welfare

Part 2 at a glance

Concept

Three pairs of concepts

Table of the three pairs of concepts: gross and net differ by depreciation, domestic and national by net factor income from abroad, market price and factor cost by net indirect taxes
Pair	Difference between them	Adjust by
Gross ↔ Net	Gross includes depreciation	Depreciation
Domestic ↔ National	Territory vs normal residents	Net factor income from abroad (NFIA)
Market price ↔ Factor cost	Market price includes net indirect taxes	Net indirect taxes (indirect taxes − subsidies)

Concept

Domestic territory and normal residents

Normal resident: a person or institution that ordinarily lives in a country and whose centre of economic interest lies there, usually for a year or more.

Table of domestic territory: it includes the land, waters and airspace of India, Indian embassies abroad and ships, aircraft and fishing boats run by residents; it excludes foreign embassies and international organisations in India and factories of Indian companies abroad
Part of India's domestic territory	Not part of it
Land, territorial waters and airspace of India	Foreign embassies and consulates in India
Indian embassies, consulates and military bases abroad	Offices of international organisations in India
Ships, aircraft and fishing boats run by residents between countries or in international waters	Factories of Indian companies located abroad