NATIONAL INCOME

The foreigner is to have a share in your domestic economy.

By: Vasundhara GhoseB.Tech 3rd year.

TOPICS COVERD:•Definition of national income•Concepts of national income•Methods to calculate national income•Factors effecting national income•Applications of national income•Limitations of national income

DEFINATION:

•National income is the total value of a country’s final output of all new goods and services produced in one year.

CONCEPTS OF NATIONAL INCOME•GROSS DOMESTIC PRODUCT(GDP)•GROSS NATIONAL PRODUCT(GNP)•NET NATIONAL PRODUCT(NNP)•NATIONAL INCOME AT FACTOR

COST(NI)•PERSONAL INCOME(PI)•DISPOSABLE INCOME(DI)•PER CAPTICA INCOME

GROSS DOMESTIC PRODUCT (GDP)

•Gross domestic product is the money value of all final goods and services produced within the domestic territory of a country during a year.

• GDP=(P*Q) where p=price of goods and services q=quantity of goods and

services•Includes:-Goods & services+government exp.

+private domestic investment in capital goods+ exports & imports

GROSS NATIONAL PRODUCT(GNP)

•Total market value of all final goods and services produced annually in a country plus net factor income from aboard.

•GNP=GDP+NFIA(net factor income from aboard)

•Includes: Goods & services government exp.+ private domestic investment in capital goods+ exports & imports+ net factor income from aboard.

NET NATIONAL PRODUCT(NNP)

•Derived by subtracting depreciation allowance from GNP.

• NNP=GNP- depreciation

NATIONAL INCOME AT FACTOR COST(NI)

•Sum of all incomes earned by resouces suppliers for their contribution of land,labour,capital and organization.

• NI=NNP +Subsidies- Interest

OTHER TERMS…• Personal Income (PI)

Personal Income i s the total money income received by individuals and households of a country from all possible sources before direct taxes.

•PI=NI-Corporate Income Taxes-Undistributed Corporate Profits-Social Security Contribution+Transfer Payments

• Disposable Income (DI)

The income left after the payment of direct taxes from personal income is called Disposable Income. Disposable income means actual income which can be spent on consumption by individuals and families.

DI=PI-Direct Taxes

• Per Capita Income (PCI)

Per Capita Income of a country is derived by dividing the national income of the country by the total population of a country. Thus,

PCI=Total National Income/Total National Population

METHODS OF NATIONAL INCOME ACCOUNTING

HOW TO CALCULATE

NATION INCOME??

•Three methods of measuring national income:--

•Value added method•Income method•Expenditure method

NATIONAL INCOME ACCOUNTING

Value added method:--

•Value added is defined as the difference between total value of output of a firm and value of inputs bought from other firms.

GVA MP = Value of output – Intermediate Consumption

Sales + change in stock – Intermediate

Consumption

•The income method measures national income from the side of payments made to the primary factors of production in the form of rent, wages ,interest and profit for their productive services in an accounting year.

•Land: rent Labor :wages Capital : interest Entrepreneur : profit•TOTAL INCOME= NATIONAL INCOME

CALCULATION OF NATIONAL INCOME BY INCOME METHOD

•Total amount spent on goods and services produced in a nation by households, firms, government and foreigners .

I. HOUSEHOLD: CONSUMPTIONII. FIRMS : INVESTMENTIII.GOVERNMENT :GOV’S SPENDINGIV. FOREIGNERS: EXPROT-IMPORT C+I+G+(X-M)= TOTAL EXPENDITURE

Calculation of National income by expenditure method-

FACTORS EFFECTING NATIONAL INCOME:-

FACTORSFOR

NATIONAL INCOME

FACTORS EFFECTING NATIONAL INCOME•Factors of production•Technology•Government•Political stability•Corruption

APPLICATIONS OF NATIONAL INCOME

HOW NATIONA LINCOME HELP NATION??

APPLICATIONS OF NATIONAL INCOME•Living Standard•Policy formation•International comparison•Business decision•Growth of economy•Helpful in removing inequalities in

income distribution

LIMITATIONS OF NATIONAL INCOME

LIMITATIONS OF

NATIONAL INCOME

LIMITALIONS OF NATIONAL INCOME:• In UDC, due to illiteracy

producer don’t keep regular accounts.

• In UDC, lack of adequate statistical data.

• ERROR in measurement(BLACK MARKET etc.)

• Household production is ignored( child-care,laundry etc)

How uniform is the distribution of GDP? It still seems that a majority of the people are poor and only some have benefited.

ANY QUERY??