national income
DESCRIPTION
TRANSCRIPT
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!