National Income Analysis - Final

NATIONAL INCOME

ANALYSIS

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NATIONAL INCOME CONCEPTS

NATIONAL INCOME

NATIONAL INCOME : It is the sum of factor incomes- wages, interest, rent and profit received by the owners of factors of production - labour, capital, land and entrepreneurs of a nation during one year.

GROSS DOMESTIC PRODUCT(GDP)GROSS NATIONAL PRODUCT AT MARKET PRICES

NET DOMESTIC PRODUCTS AT MARKET PRICES

NET NATIONAL PRODUCT AT MARKET PRICES

NET NATIONAL PRODUCT AT FACTOR COST

AGGREGATES OR CONCEPTS

GDP is the market value of all the final goods and services produced within the domestic territory of the country during a year.

Measures of GDP :A. Gross measureB. Market valueC. New production

GROSS DOMESTIC PRODUCT

Gross national product at market prices is the monetary value of all final goods and services produced in the domestic territory of a country during a year plus net factor income from abroad (NFIA) .

GROSS NATIONAL PRODUCT

NET DOMESTIC PRODUCT AT MARKET PRICE is the net market value of all the final goods and services produced in the domestic territory of the country.

Formula : Net Domestic Product at Market Price = Gross Domestic Product at Market Price less Depriciation

NET DOMESTIC PRODUCT

NET NATIONAL PRODUCT AT MARKET PRICES is the net market value of all the final goods and services produced by the normal residents of a country during a year.

Formula : Net National Product at MP = GNP at MP less Depreciation

NET NATIONAL PRODUCTMP

NET NATIONAL PRODUCT AT FACTOR COST is the sum total of net value added at factor cost by all the normal resident producer enterprises of a country during a year.

Formula : NNP AT FACTOR COST = GNP AT FC LESS DEPRCITION

NET NATIONAL PRODUCTFC

1. GNP at mp = GDP at mp + NFIA

2. NDP at mp = GDP at mp - Depreciation

3. NNP at mp = GNP at mp - Depreciation

4. NDP at mp = NNP at mp - NFIA

5. NDP at fc = NDP at mp - Net Indirect Taxes

6. GDP at fc = GDP at mp - Net Indirect Taxes

7. NDP at fc = GDP at fc - Depreciation8. GNP at fc = GNP at mp - Net

Indirect Taxes9. GDP at fc = GNP at fc - NFIA

formulae

PRIVATE INCOME : It refers to the income earned by private enterprises and workers (both within the domestic territory and abroad) and current transfers from government and rest of the world.

PERSONAL INCOME : It is sum of all kinds of income received by the individuals from all resources.

PERSONAL DISPOSABLE INCOME : It is the sum of income available to persons from all the sources to dispose them off as they like.

RELATED CONCEPTS:

CIRCULAR FLOW OF INCOME

TWO-SECTOR MODEL

FOUR-SECTOR MODEL

METHODS OF MEASURING NATIONAL INCOME

PRODUCTION

INCOMEEXPENDITURE

THREE CONTINUOUS PHASES OF ECONOMY

THREE METHODS OF MEASURING

“NATIONAL INCOME”1) PRODUCTION METHOD OR VALUE ADDED METHOD

2) INCOME METHOD

3) EXPENDITURE METHOD

1. Final Product Method

1.VALUE ADDED METHOD -

•Also known as “Production Method”•To avoid the problem of “DOUBLE COUNTING”• It measures Contribution of each Individual Enterprise at a particular stage of production• The value of Intermediate goods is not calculated

1.VALUE ADDED METHOD - Country’s Gross Value added =

Total Value of gross output (∑ Pn x Qn)

- Total Value of Intermediate Consumption *

* Goods which are used for further production.

Concepts related to Value Added Method

Net value Added at Factor Cost = Value of Gross Output – Intermediate Consumption - Depreciation – Net Indirect Taxes

NNPFC = Net value added by Primary Sector + Net value added by Secondary Sector + Net value added at Tertiary Sector

INCLUDE

Imputed rent values of self-occupied houses

Net increase in stocks

DON’T INCLUDE Non–marketed goods

and services produced for self-consumption

Sale and purchase of second-hand goods

Trading of stocks and bonds

Goods and services produced in Govt. sector

PRECAUTIONS OF VALUE ADDED METHOD:

• Here, NI is estimated by adding Incomes earned by all the factors of production.

• Value added at factor cost or domestic factor income is the sum of payments received by all the factors of production during a year and within the domestic boundaries.

2.INCOME METHOD:

2.INCOME METHOD: Steps of Income Method

To identify and classify the enterprises which employ factors of production

Classification of Factor Incomes

Measure factor payments

Adding up of factor payments

2.INCOME METHOD: Components of Domestic Factor Income-1. Compensation to employees - The

payment made by producers to their employees in the form of:• Wages and Salaries in cash• Compensation in Kind• Employers’ contribution to Social

Security Scheme.

Key points to be remembered while estimating compensation to employees

It is a DOMESTIC CONCEPT REIMBURSABLE expenses are not included Employee’s OWN CONTRIBUTIONS to “Social Security Schemes” are not included INTEREST-FREE LOANS are not included, but the imputed interest is included. Compensation received by an employee from INSURANCE COMPANY is not included

2. Operating Surplus – The excess of Gross value added by the producer over the sum of compensation to employees , net indirect taxes and consumption of fixed capital.

2.INCOME METHOD:

2.INCOME METHOD:

COMPONENTS OF OPERATING SURPLUS

Income from Property

Rent

Royalty

Interest

Income from Entrepreneurshi

p

Profit

2.INCOME METHOD:3. Mixed Income of the self-employed- Income generated by unincorporated enterprises owned by the members of the household.

Components of Mixed Income - • Income of own account worker• Profits and dividends of unincorporated enterprises.

PRECAUTIONS OF INCOME METHOD: INCLUDE DON’T INCLUDE

Transfer Payments Illegal Money Corporate Profit Tax and Income Tax Windfall Gains Receipt from the sale of second-hand goods Death duties, gift tax, wealth tax and tax on windfall gains

Imputed Value of factor services

• NI is calculated by adding up all expenditures made on goods and services

during a year

3.EXPENDITURE METHOD:

GDPMP = C + I + G +(X-M)

3.EXPENDITURE METHOD:

Final Private Consumption Expenditure (C)

Investment Expenditure (I)

Final Government Expenditure (G)

Net Exports (X-M)

COMPONENTS OF GdP MP

3.EXPENDITURE METHOD:1.Final Private Consumption Expenditure (C) – Includes expenditure on Durable Goods Non-Durables Goods Services or Intangible Goods

2.Investment Expenditure (I) – Includes Business Fixed Investment Inventory investment Residential Construction Investment Public Investment

3. Goods and Services produced by the Govt. (G) – • Public Investment goods

4. Net Exports (NE) – It is equal to Merchandise Exports (X) minus Merchandise Imports (I)• NE = X – M

3.EXPENDITURE METHOD:

ITEMS TO BE EXCLUDED IN THE ESTIMATION OF GNP

o Sale and Purchase of securitieso Govt. Transfer Paymentso Private Transfer Paymentso Sale and Purchase of Second-hand goodso Non-marketed Goods and Serviceso Illegal Activities

ECONOMIC WELFARE AND NATIONAL INCOME

Is GNP a real indicator of GROWTH and DEVELOPMENT ?????

Not necessarily……What about the issues such as : Distribution of Income in Society Sustainable Development Standard of Living Employment Scenario Types of Goods being produced in the economy

To counter these problemsNew concepts are emerging……GREEN GNP

HUMAN DEVELOPMENT INDEXNET ECONOMIC WELFARE OR “NEW”

THANK YOU !!!

PRESENTED BY: TUSHAR SAINI URVASHI KOLI SHIVANGI AGARWAL

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