We know that capital goods are included in the Gross National Product under the heading of Gross Domestic Public Investment and Gross Domestic Private Investment. Now in order to arrive at the Net National Product from the Gross National Product we deduct depreciation cost of capital goods say, machinery.

Hence, Net National Product is equal to Gross National Product –( Depreciation allowances) the purpose of deducting this from the Gross National Product is simply because the value of machine depreciates throughout the year by its use and sometimes even amounts to complete depreciation through its wear and tear. Thus, in order to arrive at the exact value of machinery at the year it is advisable to deduct the above mentioned from G.N.P. N.N.P. can be symbolically expressed as follows.

N.N.P. = C + In + G + (X-M).

C = Personal Consumption Expenditure
In = Net Investment i.e. (Gross Investment – Depreciation Allowances)
G = Government Expenditure
X-M = Export Surplus