In this article, we will talk about Economy Basic Terms – GDP, GNP, Inflation and other key details.

Understanding the basic terms of the economy is important for competitive exams like UPSC, SSC, Banking, and State PSCs.

These terms help us know how a country measures its growth, wealth, and financial health.

Gross Domestic Product (GDP)

• Focus: Production inside the country, whether by citizens or foreign companies.
• Example: If Tata Motors (India) and Hyundai (South Korea) both produce cars in India, the value of both is included in India’s GDP.
• Types:
  • Nominal GDP: At current prices.
  • Real GDP: Adjusted for inflation.
• Importance: Shows how fast an economy is growing.

Gross National Product (GNP)

• Focus: Ownership by citizens.
• Example: If an Indian company sets up a factory in the USA, its output is added to India’s GNP, not GDP.
• Formula:
  GNP = GDP + Income earned by Indians abroad
  – Income earned by foreigners in India

Inflation

• Effect: When inflation rises, the value of money falls (you can buy less with the same amount).
• Causes:
  • Demand-pull inflation: Too much demand, less supply.
  • Cost-push inflation: Increased cost of production (like fuel, raw materials).
• Measured by:
  • WPI (Wholesale Price Index)
  • CPI (Consumer Price Index)
• Impact:
  • Moderate inflation = sign of growing economy.
  • High inflation = reduces purchasing power.

Here’s a comparison table for quick revision on GDP, GNP & Inflation (very useful for Static GK):

Comparison Table – GDP vs GNP vs Inflation

Types of GDP, GNP & Inflation

When studying economics for competitive exams, it is not enough to just know what GDP, GNP, and Inflation mean. Their types are equally important because they show how economists measure growth and money value in different ways.

1. Types of GDP (Gross Domestic Product)

• Nominal GDP:
  Measured at current prices. It does not account for inflation.
  Example: If prices rise, nominal GDP may look bigger even if production is the same.
• Real GDP:
  Adjusted for inflation, shows actual growth in production.
  Example: If inflation is 6% but growth is 8%, then real GDP growth = 2%.
• GDP at Factor Cost:
  Based on cost of production (wages, rent, profits). This was used in India earlier.
• GDP at Market Price:
  Based on market value of goods and services (includes taxes, excludes subsidies). India now uses this method.
• Per Capita GDP:
  GDP divided by the country’s population. Shows average income of citizens.

2. Types of GNP (Gross National Product)

• Nominal GNP:
  At current prices, without adjusting for inflation.
• Real GNP:
  Adjusted for inflation.
• GNP Per Capita:
  GNP divided by the country’s population → shows average income of citizens globally.
• Net National Product (NNP):
  GNP minus depreciation (the wear and tear of capital goods).

3. Types of Inflation

• Demand-Pull Inflation:
  Caused when demand is greater than supply.
  Example: Festivals increase demand for goods → prices go up.
• Cost-Push Inflation:
  Caused by higher production costs (like fuel or raw materials).
• Creeping Inflation:
  Slow rise in prices (1–3% yearly). Considered normal.
• Walking Inflation:
  Moderate inflation (3–10%). Still manageable.
• Galloping Inflation:
  Very high inflation (above 10%), harmful for the economy.
• Hyperinflation:
  Extremely high rise (sometimes >100% per year). Rare but very dangerous.
• Deflation:
  Opposite of inflation – prices fall instead of rising. It weakens demand.

Here’s a comparison table of all important types of GDP, GNP & Inflation for quick revision (Static GK):

Comparison Table – Types of GDP, GNP & Inflation