Download CONCEPTS OF NATIONAL INCOME

TOPIC
NATIONAL INCOME
:
2
CONTENTS2
1. INTRODUCTION.
2. DEFINATION.
3. CONCEPT OF NATIONAL
INCOME.
4. METHOD OF MEASURING
NATIONAL INCOME.
5. USE OF VALUE ADDED
AND INCOME METHOD.
6. PROBLEM IN ESTIMATING
NATIONAL INCOME.
INTRODUCTION
• It means the total value of goods and services
produced annually in a country.
• It includes payments made to all resources in
the form of wages, interest, rent and profits
DEFINATION:
• The net output of commodities and services
flowing during the year from the country’s
productive system in the hands of the
ultimate consumer.
CONCEPTS OF NATIONAL
INCOME:
1.
2.
3.
4.
5.
GNP(GROSS NATIONAL PRODUCT).
GDP(GROSS DOMESTIC PRODUCT).
NNP(NET NATIONAL PRODUCT).
PI (PRIVATE INCOME.)
DI (DISPOSAL INCOME.)
1.GNP(Gross National Product):
It is the value of the final goods and services produced in the
economy in a given period of time.
There are two approaches to measure GNP:
1.
Expenditure approach.
2.
Income approach.
Equation of GNP is,
GNP=C+I+G+Xn
where,
C is personal consumption expenditure
I is gross private domestic investment
G is government purchases of goods and services
Xn is net export
2.GDP(Gross domestic product):
• Income generated or earned by the factors of
production within the country from its own
resources is called domestic income or domestic
product..
• It includes wages ,salaries , rents , interest, dividents.etc
3.NNP(NET NATIONAL PRODUCT):
•Net national product is the total output available for the use.
4. PRIVATE INCOME:
• Private income is income obtained by
private Individuals from any source.
5.DISPOSAL INCOME:
•
Disposal income or personal disposal income means
the actual income which can be spent on consumption by
individual and families.
•
Disposal income = consumption
expenditure +
savings
Methods of measuring
National Income
•Value Added Method
•Income Method
•Expenditure method
Value Added Method
Classify the industry into various industrial sectors
Find the value output by an enterprise
Subtract the intermediate consumption, depreciation and net
indirect taxes from it, we will get the NVAFC by all enterprises of an
industry
Add them all and we will get the NVAFC by each industry. Then add
NVAFC by every industry, we get NDPFC
Now, add the net factor income from abroad to it and NATIONAL
INCOME is obtained
Income method
Classify the economy into various industrial sectors
Classify the factor payments
To measure the factor payments
Adding the factor payment by various enterprises
Summing up the incomes paid by various industries, we get NDP at
factor cost
Finally adding net factor income earned from abroad to NDPFC, we
get NATIONAL INCOME
Expenditure Method
Add various expenditures like final private consumption expenditure
(C), government’s final consumption expenditure(G), gross domestic
investment(I) and net exports (X-M)
We get GDMP, deduct the depreciations from it and we will get the
NDPMP.
Now subtract net indirect taxes, we get NDPFC
Lastly by adding net factor income from abroad to NDPFC we will
get the NATIONAL INCOME.
Use of Value added method
•
•
•
•
•
Agriculture & allied activities
Forestry & logging
Fishing
Mining
Registered manufacturing
Income method is used for:-
•Unregistered manufacturing
•Gas, electricity & water
•Banking & insurance
•Transport & communication
•Real estate
•Trade
•Defence
•Other services
Economic States :- INDIA V/S US
INDIA
US
Business efficiency
59.053
Ranked 33rd.
100
Ranked 1st
Economic importance
2.1
Ranked 25th
197.9
Ranked 1st
GDP
$4,164,000,000,000.00Ranked 5th in
2006.
$13,060,000,000,000.00
Ranked 2nd in 2006
GDP (Per Capita)
$3,751.99 per capita
Ranked 121st in 2006
$43,680.67 per capita
Ranked 3rd in 2006.
Gross National income
$477,000,000,000.00
Ranked 12th.
$9,780,000,000,000.00
Ranked 1st.
Human Development Index
0.602
Ranked 128th.
0.944
Ranked 10th.
Income distribution > Poorest 10%
3.5%
Ranked 22nd.
1.8%
Ranked 85th.
Income distribution > Richest 10%
33.5%
Ranked 38th.
30.5%
Ranked 54th.
Gross national income of top 10 countries (most recent)
US
Units in billion dollars
9000
JAPAN
8000
GERMANY
7000
6000
UK
5000
FRANCE
4000
CHINA
3000
ITALY
2000
CANADA
SPAIN
1000
MEXICO
0
Countries
Problems in the estimation of
National Income
Statistical Problems
•Presence of subsistence sector
•Absence of accounting records
•No proper classification of economic activities
•Gaps in statistics
•Regional disparities
Conceptual Problems
•Coverage of services
•Administrative services