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Ppt-On-National-Income BBA-2 ECO

The document discusses different concepts related to national income including GDP, GNP, personal income and per capita income. It also explains different methods to measure national income including the product method, income method and expenditure method.

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Shefali Sharma
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104 views14 pages

Ppt-On-National-Income BBA-2 ECO

The document discusses different concepts related to national income including GDP, GNP, personal income and per capita income. It also explains different methods to measure national income including the product method, income method and expenditure method.

Uploaded by

Shefali Sharma
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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National Income

Compiled by
Mr. Mahesh D.Pardeshi
Assistant Professor,
Karmaveer Bhaurao Patil Institute
of Management Studies and
Research, Varye, Satara
What is National Income?
• National income measures the total value of
goods and services produced within the
economy over a period of time.
Why is national income important?
• Measuring the level and rate of growth of national
income is important to economists when they are
considering:

– Economic growth and where a country is in the business


cycle

– Changes to average living standards of the population

– Looking at the distribution of national income (i.e.


measuring income and wealth inequalities)
NATIONAL INCOME CONCEPTS
• Gross domestic product (GDP) is defined as
"an aggregate measure of production equal to
the sum of the gross values added of all
resident institutional units engaged in
production
• Gross national product (GNP) is the market
value of all the productsand services
produced in one year by labor and property
supplied by the citizens of a country.
• 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.
• 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.
National Income:
Concept and Measurement
• Production of goods and service generates income and income give
rise to demand for goods and service, demand give rise to
expenditure, and expenditure give further rise to production of
goods and service. there is a circular flow of production, income and
expenditure.

• On the basis of these flows, national income can be analysed at


1. as a flow of goods and services
2. as a flow of incomes
3. as a flow of expenditure on goods and services.
Figure: Measuring National Product and National Income
A. Product Method

(a) Final product approach

• The final product approach involves estimation of the market value of


final goods and services produced in the economy in a given period.
Steps in Final Product Approach:

(i) The market value of all final goods and service produced within the
country gives the estimate of Gross Domestic Product at Market
Price (GDP at MP)

(ii) The addition of net factor income from abroad in GDP at


MP gives Gross National Product at Market Price
(GNP at MP).

(iii) The deduction of depreciation from Gross National


Product at market price (GNP at MP) MP provides
Net National Product at market Price (NNP at MP).

(iv) The deduction of net indirect taxes from NNP at MP give


Net National Product at Factor Cost (NNP at FC)
Problem of Double Counting

The calculation of national income through final product approach


considers the market value of final goods and services.

The value of intermediate goods is not included. If the value of


intermediate goods are considered, it will involve the problem of double
counting.

• Double counting means, consideration of certain item more than


once which leads to over estimation of national income.
B. Income Method

• It is the sum of all income derived from providing the factors of


production.

• It includes wages and salaries, rent, interest and profits within a


country in a given year.
Steps in Income Method:

1. Obtain Net Domestic Product at Factor cost (NDP at FC) by summing


up factors payment paid in form of wages & salary, rent, interest
and profit by all production units of all sectors in the country.

2. Add Net factor income from abroad in Net Domestic Product at


Factor Cost to obtain Net National Product at Factor Cost (NNP at
FC) or national income.
C. Expenditure Method

Expenditure method measures national income as aggregate of all


the final expenditure on gross domestic product in an economy
during a year.

This is the sum of expenditure made for final consumer goods and
investment demand, and for net export.

Therefore, the sum of total income (Y) equals to the sum of final
expenditure incurred on consumption goods (C) and the sum of
investment goods (I). Symbolically, Y = C + I.
Steps in Expenditure Method:

1. GDP at MP = Gross National Expenditure at Market Price (GNE at


MP) which the sum of Final private consumption expenditure (C),
Government final consumption expenditure (G), Gross domestic
private investment (I) which includes gross fixed capital formation
plus changes in stocks, and Net export or export minus import (X-
M)

2. An addition of net factor income from abroad (NFIA) to


GDP at MP provides Gross National Product at market price
(GNP at MP).

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