Functions of GDP, NDP, NNP & BOP

May it be SSC, Banking or any Government Examination, the General Knowledge

section requires an examinee to know broad range of facts from various subject matters.
If you keenly follow the trend, you will see a lot of questions are asked about functions of
GDP and more.To help you know about all the functions of GDP, NNP, NDP and more,
here is an article on functions of GDP and more for SSC & Banking exams. Carefully go
through the article as some out of the many mentioned here, are definitely going to be a
part of your exam.

1. GDP - Gross Domestic Product

Gross Domestic Product is a monetary measure of the market value of all the final goods
and services produced in a period of time, often annually or quarterly. It can also be
summed as the value of final goods and services produced inside the boundary of nation
during one year.

GDP= Value of Gross Domestic Output- value of intermediate consumption

Functions of GDP -

1. GDP is used to calculate per annum percentage change in the growth rate of an
economy.
2. It is a quantitative aspect and its size gives the estimate about the internal
strength of economy. But it DOES NOT say about the qualitative aspect of the
produced goods.
3. GDP is used by the IMF or the WORLD BANK to do comparative analysis of its
members.

1|Page
2. NDP - Net Domestic Product

The Net Domestic Product equals the gross domestic product minus depreciation on a
country's capital goods. Net Domestic Product accounts for capital that has been
consumed over the year in the form of housing, vehicle, or machinery deterioration. In
short it is the net form of GDP.

NDP= GDP – Depreciation

Depreciation is a decrease in an asset’s value caused by unfavourable market conditions.

Functions of NDP -

1. Government announces the rate of depreciation in the economy. In domestic use,

NDP is is used to understand the loss due to depreciation.
2. NDP is not used for the comparative economies since the rate of depreciation is
different for different countries.
3. In India NDP is announced by the Ministry of Commerce and Industry.

3. GNP - Gross National Product

Gross National Product (GNP) is an estimate of total value of all the final products and
services turned out in a given period by the means of production owned by a country's
residents. It is the GDP of a country added with its income from abroad.

GNP= GDP + Income from Abroad

Or,
GNP = GDP – Income from abroad

Income from abroad= trade balance + interest on External Loans+ Private

Remittance
2|Page
Private remittance= inflows and outflows on account of private transfer e.g. NRI

Trade balance = net outcome at the year end of the total import and export.

Interest on external loans= balance of the inflow of interest payment (on money
lend out of economy) – outflow of interest payment (on the money borrowed by the
economy)

In case of India, GNP is negative. This is because of heavy outflows on account of Trade
Deficit and interest payment on foreign loans.

Functions of GNP -

1. GNP is the “national income” according to which IMF ranks nations based on
PPP or Purchasing Power Parity. [India ranked 4th after USA, Japan and China]
2. It is indicative of the qualitative as well as quantitative aspect of the economy.

4. NNP - Net National Product

Net National Product refers to Gross National Product, i.e. the total market value of all
final goods and services produced by the factors of production of a country or other
polity during a given time period, minus depreciation.

NNP= GNP – Depreciation

Or,
NNP= GDP+ income from abroad- depreciation

NNP or Net National Product is the purest form of Income. It is the National Income
or NI. We can find the per capita income of a country if we know the NNP and total
population.

3|Page
e.g. (NNP/ total Population) = per capita income

Functions of NNP -

1. NNP is a measure of how much a country can consume in a given period.

2. NNP measures output regardless of where that production takes place (in other
words, it includes the value of goods and services that American companies
produce, supply or create abroad).

5. BOP - Balance of Payments

• The Balance of Payments is a statement that contains the transactions made by

residents of a particular country with the rest of the world for a specific time
period. It is also known as the Balance of International Payments and if often
abbreviated as BOP. It summarizes all payments and receipts by firms,
individuals, and the government. The transactions can be both factor payments
and transfer payments.
• There are two accounts in the BOP statement: Current Account and Capital
Account.
• Current account records all transactions involving goods, services, investment
income and current transfer payment.
• Capital account shows the net change in ownership of foreign assets and
transactions in financial instruments.
• The balance of payments account follows a double entry system. All receipts are
entered on the credit whereas all payments are entered on the debit side.
• Theoretically, a balance of payments accounts is always zero with the total on the
debit side equaling the total on the credit side.
• Practically, however, there might be an error of some degree due to the different
sources of data and fluctuation of currency exchange rates.
4|Page
Current Account

The 4 major components of current account are as follows:

1. Visible trade – This is the net of export and imports of goods (visible items).
The balance of this Visible Trade is known as the trade balance. There is a trade
deficit when imports are higher than exports and a trade surplus when exports
are higher than imports.
2. Invisible trade – This is the net of exports and imports of services (invisible
items). Transactions mainly constitute of shipping, IT, banking and insurance
services.
3. Unilateral transfers to and from abroad – These refer to payments that are
not factor payments. These are ‘one-way’ transactions. For examples, gifts or
donations sent to the resident of a country by a non-resident relative.
4. Income receipts and payments – These include factor payments and
receipts. These are generally rent on the property, interest on capital and profits
on investments.

Capital Account

The capital account is used to finance the deficit in the current account or absorb the
surplus in the current account. The three major components of capital account:

1. Loans to and borrowings from abroad – These consist of all loans and
borrowings given to or received from abroad. It includes both private sector loans
as well as the public sector loans.
2. Investments to/from abroad – These are investments made by nonresidents
in shares in the home country or investment in real estate in any other country.

5|Page
 3. Changes in foreign exchange reserves – Foreign exchange reserves are
maintained by the central bank to control the exchange rate and ultimately
balance the BOP if it is not.

Current account deficit is financed by a surplus in the capital account and vice versa.
This can be done by borrowing more money from abroad or lending more money to
non-residents.

Functions of BOP -

1. Investment managers, government policymakers, the central bank, businessmen,

etc. all make use of the BOP data to make important decisions. The BOP data is
affected by vital macroeconomic variables such as exchange rate, price levels,
interest rates, employment, and GDP.
2. Monetary and fiscal policies are formed in a way to achieve very specific
objectives, which generally exert a significant impact on the balance of payments.
Policies can be formed with the objectives to induce or curb foreign inflows or
outflows.
3. Businesses use BOP to analyze the market potential of a country, especially in the
short term. A country with a large trade deficit is not as likely to import as much
as a country with a trade surplus. If there is a large trade deficit, the government
may adopt a policy of trade restrictions such as quote or tariffs.

Given above are the factors that are responsible for a country's growth. Hope this article
will help you to be aware about the Gross Domestic Product, Gross National Product
and much more in India and will give you an insight about it.

Also take a look at the following static GK related articles.

6|Page
 Human Rights Day 2018 - New RBI Monetary Policy -
Know the Theme, Purpose! Repo Rate Remains
and More in PDF Unchanged

List of Schemes and

List of New Appointments
Initiatives - Study Notes for
in the World - 2018
SSC & Bank Exams

Moreover, if you want to boost up your preparation, you can click on the link below
which will take you to Testbook Practice Page!

Go to Testbook Practice Page

If you want to know more about General Awareness Section, then feel free to discuss
with us on Testbook Discuss. There you can also chat with other fellow aspirants & our
Experts. They will help you to resolve your issue.

Go to Testbook Discuss!

Happy Learning!

7|Page