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What is the difference between GDP (Gross Domestic Product) and NDP (Net Domestic Product)

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What is the difference between GDP (Gross Domestic Product) and NDP (Net Domestic Product)
posted Jun 27, 2017 by anonymous

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DP and NDP are terms associated in economics. “GDP” stands for “gross domestic product” while “NDP” stands for “net domestic product.” These terms are both measures of the economic health of a particular country.

To determine how well your country’s economy is doing, the GDP is usually used since it is one of the economy’s primary indicators. GDP is defined as the total market value of all officially recognized products and services that are produced within a specific time period. To know whether the GDP has improved or not, economists compare the GDP from the previous quarter or year to the current one.

The formula for GDP is GDP = C + G + I + NX. “C” is the consumer spending. “G” is the total amount of government spending. “I” is the sum of all the country’s businesses spending on capital. “NX” is the country’s total net exports. Calculating the GDP is complicated especially to non-economists. But to make it clearer, the GDP can be measured if you add up what everybody earns annually or if you add up what everybody consumed.

The GDP reflects what kind of economy we have. GDP does not measure how many material things everyone possesses. Instead, it is a measure of the country’s productivity in general. If the GDP is up, it means that there are only a few people who are unemployed, and most workers can expect to have an increase in their wages. And investors don’t like it if the GDP is low. It means that the companies only earn lower profits than usual.

On the other hand, to know the value of the NDP, you need to deduct the depreciation of a country’s capital goods from its GDP. Without knowing the value of the GDP first, you can’t get the value of the NDP. Depreciation is defined as the reduction in the value of an asset with the passage of time due, in particular, to wear and tear.

The NDP can provide an estimated value on the country’s amount of spending in order to maintain its current GDP. Basically, the NDP helps the country to prevent it from having a falling GDP. Through an estimated NDP value, the country can be guided on how to replace its capital stock which is lost through depreciation.

If there is a consistent growing gap between a country’s GDP and NDP, it only indicates that there is an increasing obsolescence of capital goods. In wikipedia.org, “obsolescence” is defined as “the state of being which occurs when an object, service, or practice is no longer wanted even though it may still be in good working order.” If there is a narrow gap between the GDP and NDP, it only indicates that the economy is good, and the capital stock of the country is improving.

Summary:

  • “GDP” stands for “gross domestic product” while “NDP” stands for “net domestic product.” These are terms often used in economics.
  • GDP is usually one of the economy’s primary indicators.
  • GDP is defined as the total market value of all officially recognized products and services that are produced within a specific time period.
  • NDP is the estimated value on the country’s amount of spending in order to maintain its current GDP.
  • The formula for GDP is GDP = C + G + I + NX.
  • To know the value of the NDP, you need to deduct the depreciation of a country’s capital goods from its GDP.
  • A narrow gap between the GDP and NDP indicates that the economy is good, and the capital stock of the country is improving.
answer Jun 29, 2017 by Shantanu Arora
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