NATIONAL INCOME

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

MEANING

National income is the sum of factor incomes earned

by normal residents of a country in the form of rent,

wages, interest and profit in an accounting year

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

National income at current price: if goods and

services produced in ayear are valued at current

prices ,i.e., prices prevailing in that particular year,

we get national income at current price (Nominal

National Income)

National income at constant price: If goods and

services produced in a year are valued at fixed

prices i.e., prices of the base year.

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

DOMESTIC TERRITORY OF A COUNTRY

Economic territory is the geographical territory

administered by a government within which persons,

goods and capital circulate freely.

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

RESIDENT (NORMAL RESIDENT)

A person or institution who ordinarily resides in a

country and whose centre of economic interest lies

in that country.

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

INVESTMENT

Investment means addition to the stock of capital

goods such as buildings ,equipments or inventory

that adds to the future productive capacity of the

economy

Gross investment

Net investment = Gross investment -Depreciation

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

Net product=Gross product – Depreciation

Net value added=Gross value added-Depreciation

Net Domestic capital formation=Gross domestic capital

formation-Depreciation.

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

Factor cost: FC refers to all factors payments made by the

producing unit to the factors of production for renderning

productive services

Market price: MC is the price at which a commodity is sold

and purchased in the market

Indirect Taxes; Taxes which are levied by the government on

production and sale of commodities are called IT

Subsidies: these are cash grants given by the government to

the enterprises to encourage production of certain

commodities or to promote exports or to sell goods at prices

lower than the free market prices

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

Market price= Factor Cost+IT- Subsidies

Factor Cost + Net indirect taxes

Factor Cost = Market price -NIT

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

Net Factor income from Abroad (NFIA): income

attributable to factor services rendered by the normal

residents of the country to the rest of the world , less factor

services rendered to them by the rest of the world.

Components:

Net compensation of employees

Net income from property and entrepreneurship

Net retained earning of resident companies abroad

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

Value of Output : Value of output is the market

value of all the goods and services produced by an

enterprices during an accounting year

Value of output = Q x P

Value of output = Sales + Change in stock

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

Value added : it refers to the adddition of value to the

raw material by a firm by virtue of its productive

activities.

Value added = value of output –Intermediate

consumption

Gross value added at MP = value of output –

Intermediate consumption

Net value added at MP=GVA at MP-Depreciation

Net Value added at FC=NVA at MP-NIT

Net value added at FC = Sum of factor incomes

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

SOURCES OF DEMOSTIC INCOME

Copensation of employees : wage and salaries in

cash , compensation in kind, employers contribution

to social schemes

Operating surplus : OS is net value added at FC

minus compensation of employees (traditionally

called wages)

Mixed income of self employed

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

Factor Payment Transfer Payment

It comprises rent,wages, interest and profit

It comprises gifts, subsidies, donations ,scholarships..

It is received in return for rendering productive service

It is received without providing any good or service in return

It is an earned income It is an unearned income

It is bilateral payment It is unilateral payment

It is included in National income

It is not included in National Income

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

T H E C I R C U L A R F L O W ,

Goods

Other countries

Financial markets

Government

Firms (production)Household

Taxes

Factor services

SavingsImports

Government

Spending

Wages, rents, interest, profits

Exports

Investment

Personal consumption

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

VALUE ADDED METHOD

1. FINAL PRODUCT APPROACH : GDP mp =P(Q) +P(S)P= market price Q=quantity of goods S= quantity of services

2. VALUE ADDED APPROACH = NET VALUE ADDED AT FC= GROSS OUTPUT –INTERMEDIATE CONSUMPTION –DEPRECIATION - NIT

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

DOUBLE COUNTING

It means counting of the value of the same product more than once. This problem is perfectly solved by value added method. According to this method ,instead of taking value of final products ,value added by each firm at each stage of production is included.

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

INCOME METHOD

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

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

ROYALITY

Which is amount receivable by a landlord for granting leasing rights of sub soil assests and for use of patents ,copyrights ,etc ., is also included in the rent

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

INCOME OF THE GOVT. SECTORS

Income from property and entrepreneurship accruing to government administrative departments

Savings of non departmental enterprises

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

PRIVATE INCOME

Private income is the total of factor incomes and transfer incomes received from all sources by private sectors within and outside the countryPrivate income = income from domestic product accruing to private sector + net factor income from abroad + all current transfers including national debt interest = national income – income from domestic product accruing to government sector + transfer incomes =personal income + corporate tax + undistributed profit

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

PERSONAL INCOME

Personal income is the sum of earned income and transfer income received by persons from all sources within and outside the countryPersonal income = private icome – corporate tax – undistributed profits = national income – surplus of public sector –corporate tax - udistributed profit + all types of transfer incomes = domestic income – income from domestic product accruing to govt. sector - corporate tax – undistributed profit + NFIA + all types of transfer incomes

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

PERSONAL DISPOSABLE INCOME

It is that part of personal income which is available to the households for disposal as they like Personal disposable income = personal income – personal taxes – miscellaneous receipts of the govt.

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

EXPENDITURE METHOD

Expenditure method measures final expenditure on Gross Domestic Product at Market price during a period of account

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A

ANY QUESTIONS!