Q. Which of the following is the purest form of the income of the nation?
Explanation: Net National Product (NNP) of an economy is the GNP after deducting the loss due to depreciation.
The formula to derive it may be written like: NNP = GNP – Depreciation or, NNP = GDP + Income from Abroad – Depreciation.
The different uses of the concept of NNP are as given below:
- This is the National Income (NI) of an economy. Though, the GDP, NDP and GNP, all are national income they are not written with capitalized ‘N’ and ‘I’.
- This is the purest form of the income of a nation.
- When we divide NNP by the total population of a nation we get the ‘per capita income’ (PCI) of that nation, i.e., ‘income per head per year’.
A very basic point should be noted here that this is the point where the rates of depreciation followed by different nations make a difference.
- Higher the rates of depreciation lower the PCI of the nation (whatever be the reason for it logical or artificial as in the case of depreciation being used as a tool of policymaking).
- Though, economies are free to fix any rate of depreciation for different assets, the rates fixed by them make difference when the NI of the nations are compared by the international financial institutions like the IMF, WB, ADB, etc.
Source: TMH Ramesh Singh