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National Income - Short Trick

GDP, base year, ladder formulas, methods and the NSO — one sentence each

3 trick sentences5 pairs5 parts
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How to read
  • Guru Ram Each coloured word = one name in the list, shown below in the same colour
  • Panda Two colours in one word = two names
  • ➜ Order the numbered order matters · ⇄ Any order no order
1

GDP: Definition, Prices and Base Year

The four parts of the definition, the four parts of domestic territory, nominal against real GDP, the deflator and the base year.

Trick 1

The 4 parts of the GDP definition

➜ what · where · when · in what

Finally Dolly fixed the motorbike.

  1. 1Final goods and serviceswhat — not intermediate goods, to avoid double counting
  2. 2Domestic territorywhere
  3. 3Fixed periodwhen — one financial year, 1 April to 31 March
  4. 4Monetary valuein what — quantity × price

Quarters — Q1 April-June · Q2 July-September · Q3 October-December · Q4 January-March · a second-hand sale creates no new production, so it stays out of GDP.

Trick 2

What the domestic territory includes

⇄ Any order

George excitedly emailed his relatives.

  1. Geographical areathe land of the country
  2. Exclusive Economic Zone (EEZ)
  3. Embassies and military bases abroad
  4. Registered aircraft and ships (of the country)wherever in the world they are

A foreign embassy located in India is not part of India’s domestic territory.

Pairs

Nominal and real GDP

3 sentences

Nora writes today’s prices.

Nominal GDP=At current or prevailing prices — inflation stays inside · can rise with no extra output

Reena sticks to base-year prices.

Real GDP=At constant prices — inflation kept out · real growth is measured by this

Deepak puts Nora on the top bunk and Reena on the bottom one.

GDP deflator=(Nominal GDP ÷ real GDP) × 100 — e.g. 120 ÷ 100 × 100 = 120, prices 20% above the base year

The deflator is a thermometer for prices — however far above 100, that is how many per cent prices have risen.

Pairs

The base year

2 sentences

Basu moved from eleven-twelve to twenty-two twenty-three.

Base year (GDP)=Now 2022-23, earlier 2011-12 · changed by the NSO (Ministry of Statistics and Programme Implementation)

Double roti from the farm and the factory

Double deflation (new base year)=Applied to agriculture and manufacturing in the production method — input prices adjusted along with output prices · single deflation discontinued

The new base year also brought new data sources (GST collections, the e-Vahan portal, the Public Financial Management System), integrated Supply and Use Tables, a better PFCE estimate, and ASUSE and PLFS.

Trick 3

4 features of a good base year

⇄ Any order

Steady Bala relies on recent news.

  1. Stability (economic)no recession or hyperinflation
  2. Balanced economic activityno extreme swing in any major sector
  3. Reliable data available
  4. Recent (as far as possible)the nearer, the truer the structure
2

From GDP to National Income

The four steps of the ladder, GDP against GNP, who is a non-resident, and market price against factor cost.

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3

Other Forms of Income and Concepts

The personal income formula, disposable income, ICOR and GFCF.

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4

Methods of Calculation and What Stays Out

Kuznets’ three methods, the ones India uses, the four spenders of the expenditure method, production tax against product tax, and what GDP leaves out.

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5

Institutions and History

The first three attempts at national income, the years of the statistical bodies, and the three sectors of the IIP.

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Read the full chapter for the complete notes — a trick helps you remember the list; understanding comes from the notes.