National Income • Nishant Thakur • Pratish Sharma • Siddharth Roy • Aditya Singh Chauhan 118 134 186 012 CONTENTS • • • • • “ Concepts of national income Introduction Methods of measuring National Income Uses of National Income Estimates Challenges in measuring national income. 2 WHAT IS NAIONAL INCOME? • National income is the money value of all the final goods and services produced by a country during a period of one year . National income consists of a collection of different types of goods and services of different types. • Factor income earned by normal resident of a country during the period of accounting year. 3 Concepts of national income • • • • • • • Gross Domestic Product(GDP) Net Domestic Product(NDP) Gross National Product(GNP) Net National Product(NNP) National Income at Factor Cost Personal Income Disposable Personal Income 4 Gross Domestic Product(GDP) GDP is the aggregate money value of the all final goods and services produced in the domestic territory of a country during a financial year. • GDP=Consumption Expenditure + Investment Expenditure + Government Expenditure + (Exports- Imports) 5 Net Domestic Product (ndp) NDP refers to the market value of all final goods and services turned out of an economy during a period of time after making allowance of depreciation charges. • NDP=GDP-DEPRICIATION 6 Gross National Product (gnp) GNP is defined as the total market value of all final goods and services produced in a country in an year’s time. ▸ GNP=GDP+(EXPORT-IMPORT) 7 Net National Product (NNP) NNP is the market value of the net output of final goods and services produced by the country during the relevant income period” • • • NNP= GNP – Depreciation charges NNP= NDP + X – M NNP gives idea net increase in total production of the country. 8 Personal Income Personal income is the gross earnings received by an individual or a household including all the sources of compensation such as wages, salaries, investments, and bonuses. Disposable Personal Income A worker’s disposable personal income (DPI) is how much money they have to spend after subtracting taxes, including income tax, Social Security tax, and Medicare tax. Individuals can either spend or save disposable personal income. Measuring of Measuring National Income I. Product Method II. Income Method III. Expenditure Method Product Method ▸ Product or value added method is a way of computing the national income of a country. This system is also known as output or inventory method. This method calculates national income by adding value to a product at every stage of its production Formulae:- Value Added or Value Addition = Value of Output - Intermediate Consumption Income Method ▸ Income method calculates national income based on the flow of factor revenues. There are four factors associated with every production activity; these are land, labor, capital, and entrepreneurship. Laborers receive their wages, the land gets rent, capital accrues interest, and entrepreneurship gets profit, each earning through the individual. Income Method Formula National Income (NNPFC) = Net Domestic Product at Income from Abroad Here NDPFC = Compensation of Employees + Operating Surplus + Mixed-Income Here Operating Surplus = Rent + Interest + Profit Expenditure Method ▸ ▸ ▸ ▸ ▸ ▸ ▸ ▸ ▸ The expenditure method of calculating national income or gross domestic product takes into account the final goods and services produced in a country during a period of time. The formula for calculating national expenditure is: National income = C + I + G + (X − M) Where, C = Consumption by residents of the nation I = Investment G = Government spending X = Exports M = Imports Uses of National Income Estimates Estimates of National Income as well as data collected during the process of this estimation can be both very useful in studying the performance of various sectors of economy, structural changes taking place in the economy, the growth of the economy and the changes in the standard of living of the people. Some of the important uses of national income data are as follows: Measurer of Economic growth Indicator of success or failure of planning Estimation of per capita income Assessing the performance of different production sectors Useful in measuring inequalities in the distribution of income Makes international comparison possible Measures the level and pattern of investment Indicator of standard of living Helps in revealing the pattern of consumption Challenges in Measuring National Income Theoretical or Conceptual Difficulties Definition of the term “nation” in National Income Choice of method for measuring the National Income Only goods and services having monetary value included Stage at which National Income is estimated Practical or Statistical Difficulties “ Problem of double counting Existence of illegal earnings Existence of non market transactions Coverage of commodities and services Thanks! any questions ? 19
