national income
DESCRIPTION
NATIONAL INCOME PPT FOR BETTER UNDERSTANDING. VIT BUSINESS SCHOOL BY 2009 MBA AND MBA(IB) STUDENTSTRANSCRIPT
NATIONAL INCOME
PECIAL THANKS TO Dr. ANNADURAI C
PRESENTED BY:
ANURADA S.
SUJIT KUMAR
SHIVAM SETH
AURIPRYADARSHNI
INDHU RAMCHANDRAN
© VIT BUSINESS SCHOOL , VELLORE, TAMIL NADU.
NATIONAL INCOME:WHAT IS NATIONAL INCOME?• National Income is the sum of all factor
earnings from current production of goods andservices.
• Factor earnings are incomes of factor ofproduction: land, labor, and services.
or• The sum of all incomes of the people of a
country is called national income.
National income = value of final goods and services produced =
wages+rent+intrest+profits = National Product
Source: Macroeconomic theories and policies written by Richard T. Froyen page no.22 part 2.3 I.S.B.N:0-02-339591-5
THE CIRCULAR FLOW OF MONEY THROUGH ECONOMY.
MARKETS FOR FACTOR OF PRODUCTION
FINANCIAL MARKETS
GOVERNMENT
MARKETS FOR GOODS AND SERVICES
HOUSEHOLD FIRM
INCOME
PRIVATE SAVING
TAXES
CONSUMPTION FIRM REVENUE
FACTOR PAYMENTS
INVESTMENT
SOURCE: FIG 3-1, PAGE 45, MACROECONOMIC 6TH EDITION BY N. GREGORY MANKIW I.S.B.N:978-0-230-22492-6
GOVERNMENT PURCHASES
PUBLIC SAVING
CONCEPTS OF NATIONAL INCOME:
Gross Domestic Product
Gross National Product
Net National Product
Personal Income
Disposable Personal Income
Corporate Income
Private Income
Real Income
Domestic Income
Per Capita Income
G.D.P: Gross Domestic Product• G.D.P. is the measure of all currently produced final goods and
services within the boundary of a country evaluated at market prices.
• Four important aspects from the statement1. Currently produced.2. Final goods and services.3. Evaluated at market price.4. Within the country boundary i.e. within an economy of a
nation.
GDP=GNP-Net Income Earned Abroador
GDP = private consumption + gross investment + government spending + (exports − imports)
Real GDP: GDP evaluated at a set of constant prices.Nominal GDP: GDP evaluated at current market prices.
Source: Macroeconomic theories and policies written by Richard T. Froyen page no.18 part 2.2 I.S.B.N:0-02-339591-5
Various concept of national product
NET FACTOR INCOME FROM
ABROAD
GROSS PRIVATE INVESTMENT (I)
NET EXPORTS
GOVERNMENT PURCHASES
CONSUMPTION EXPENDITURE
GROSS PRIVATE INVESTMENT
NET EXPORTS
GOVERNMENT PURCHASES
CONSUMPTION EXPENDITURE
LESS DEPRECIATION
NET PRIVATE INVESTMENT
NET EXPORTS
GOVERNMENT PURCHASES
CONSUMPTION EXPENDITURE
LESS NET INDIRECT TAXES
WAGES+
PROFIT+
INTRESTS+
RENT
GNP GDP NDPMP NDPFC
G.N.P: Gross National Product• Gross National Product is defined as the total market
value of all final goods and services produced in a yearin a country.
• G.D.P. measures total income produced domestically,G.N.P. measures the total income earned by nationals.
• We add receipts of factor income (wages, profit, andrent) from rest of the world and subtract payments offactor income to the rest of the world.
G.N.P=G.D.P+ Income earned by its citizens abroad -Income earned by foreigners in the country
SOURCE: PAGE 28, MACROECONOMIC 6TH EDITION BY N. GREGORY MANKIW I.S.B.N:978-0-230-22492-6
N.N.P: Net National Product (national income at market price)
• To obtain N.N.P. we subtract thedepreciation of capital (the economy’sstock plant, equipment, and residentialstructures that wears out during theyear.
N.N.P. = G.N.P - Depreciation(consumption of fixed capital)
SOURCE: PAGE 28, MACROECONOMIC 6TH EDITION BY N. GREGORY MANKIW I.S.B.N:978-0-230-22492-6
Personal Income & Disposable Personal Income
• Personal Income is the nationalincome accounts measure of theincome received by person fromall sources.
• When we subtract personal taxpayments from personal income,we get a measure of disposable(after-tax) personal income.
Source: Macroeconomic theories and policies written by Richard T.Froyen page no.25 part 2.4 I.S.B.N:0-02-339591-5
FROM NATIONAL INCOME TO DISPOSABLE INCOME
NET FACTOR INCOME FROM ABROAD
PROFITS
INTRESTS
RENT
WAGES AND SALARIES
CONSUMPTION+
SAVINGS
LESS PERSONAL TAXES
LESS1.UNDISTRIBUTED CORPORATE PROFITS.2. CORPORATE TAXES3. SOCIAL SECURITY CONTRIBUTION.
PLUS TRANSFER PAYMENTS
NATIONAL INCOME PERSONAL DISPOSABLE INCOME
(NI OR NNPFC) INCOME PI DI
Corporate Income & Domestic Income
• CORPORATE INCOME: Incomes andprofits of companies or publiccorporation.
• DOMESTIC INCOME: Incomegenerated by the factors ofproduction within the country fromits own resources.
Per Capita Income
• Average earning of an individualin a particular year. Per capitaincome reflects gross nationalproduct per person.
Per capita income = national income of a country/population of a country
Private Income
• Any type of income received by a privateindividual or household, often derived fromoccupational activities or income of anindividual that is not in the form ofa salary (e.g. income from investments).
Private income = national income(NNP at factor cost) + transfer payments + interest on public debt – social
securities – profits and surpluses of public undertakings
Real Income
• Real income is the income of individuals or nations after adjusting for inflation.
Real NNP = NNP for current year * base year index / current year index
Measurement Of National Income
• Value added method
• Income method
• Expenditure method
VALUE ADDED METHOD or OUTPUT METHOD or PRODUCTION METHOD
• Under this method the economy is divided into different industrialsectors such as agriculture, fishing, mining, construction,manufacturing, trade and commerce, transport, communication andother services.
• The net value added at factor cost (NVAFC) by each productiveenterprise as well as by each industry or sector is estimated.
• In order to arrive at the net value added factor cost by an enterprisewe have to subtract the following from the output of an enterprise:
1. Intermediate consumption which is the value of goods such as rawmaterials, fuels purchased from other firms.
2. Consumption of fixed capital (i.e. depreciation)3. Net indirect taxes.• When we add net values at factor cost by all industries or sectors to
get net domestic product at factor cost NDPFC.• To the NDP we add the net factor income from abroad to get net
national product factor cost NNPFC which is also called as nationalincome.
NNPFC=NDPFC+NET FACTOR INCOME ABROAD
INCOME METHOD• Under this method, national income is obtained by summing up of the
incomes of all individuals of a country.• Steps involved in calculation• Identify the productive enterprises and classify them into various
industrial sectors such as agriculture, fishing, manufacturing, communication etc.
• Classify the factor payments.1. Compensation of employees which includes wages and salaries,
employers contribution to social security scheme.2. Rent and royalty.3. Interests.4. Profit 1. dividends 2. undistributed profits 3. corporate income tax.5. Mixed income of the self employed.• Measure factor payments.• Adding up of factor payments.• Summing up the incomes paid out by all industrial sector we can obtain
domestic factor income NDPFC.• Add net factor income earned from abroad to domestic factor income
to get national product at factor cost NNPFC.
INCOME METHOD
DIVIDENDS
UNDISTRIBUTED PROFITS
CORPORATE INCOME TAX
INTREST
RENT
MIXED INCOME OF SELF-EMPLOYED
COMPENSATION OF EMPLOYEES
NET FACTOR INCOME FROM
ABROAD
PROFIT
INTREST
RENT
MIXED INCOME OR SELF-EMPLOYED
COMPENSATION OF EMPLOYEES
CONSUMPTION OF FIXED CAPITAL
NET INDIRECT TAXES
DIVIDENDS
UNDISTRIBUTED PROFITS
CORPORATE INCOME TAX
INTREST
RENT
MIXED INCOME OF SELF EMPLOYED
COMPENSATION OF EMPLOYEES
CONSUMPTION OF FIXED CAPITAL
PROFIT
INTREST
RENT
MIXED INCOME OF SELF EMPLOYED
COMPENSATION OF EMPLOYEES
NDP FC NNP FC GDP FC GDP MP
EXPENDITURE METHOD• Expenditure method arrives at national income by adding up all expenditures made
on goods and services during a year.• Expenditure on consumer goods and services by individuals and households. This is
called final private consumption expenditure and is denoted by C.• Government expenditure on G&S to satisfy collective wants. This is called
governments final consumption expenditure and is denoted by G.• The expenditure by productive enterprise on capital goods and inventories or stock.
This is called gross domestic capital formation denoted by I.• The expenditure made by foreigners on G&S of a country exported to other
countries is exports denoted by X. enterprise & government on import of G&S fromother countries are termed as imports denoted by M.
GDPMP=C+G+I+(X-M)
• On deducting depreciation (consumption of fixed capital) from GDPMP givesnet domestic product at market price NDPMP.
• Then we deduct net indirect taxes to arrive at NDPFC.• Then we add net factor income from abroad to get net national product at
factor cost NNPFC.
NNPFC=GDPMP- consumption of fixed capital – net indirect taxes +net factor income from abroad
EXPENDITURE METHOD
GROSS DOMESTIC CAPITAL
FORMATION
GOVT. FINAL CONSUMPTION EXPENDITURE
PRIVATE FINAL CONSUMPTION EXPENDITURE
NET EXPORTS(X-M)
NET EXPORTS(X-M)
PRIVATE FINAL CONSUMPTION EXPENDITURE
NET DOMESTIC CAPITAL
FORMATIONGOVT. FINAL
CONSUMPTION EXPENDITURE
LESS DEPRECIATION
LESS NET INDIRECT TAX
NET FACTOR INCOME FROM ABROAD
NET DOMESTIC CAPITAL FORMATION
PRIVATE FINAL CONSUMPTION EXPENDITURE
NET EXPORTS(X-M)
GOVERNMENT FINAL CONSUMPTION EXPENDITURE
GDPMP NDPMP NDP FC NNPMP
Problems in Calculating National Income• Treatment of non-monetary transactions.
• Treatment of government activities in national
income accounts.
• Treatment of income generated by foreign firms.
• Conceptual Difficulties
Black Money
Non-Monetization transactions
Overlapping of occupation
Services go unaccounted
• Statistical Difficulties:
• Lack of adequate statistical data.
• Error of double counting
• Illiteracy in India: most producers have no ideaof quantity and value of their output and donot follow the practice of keeping regularaccounts.
• Occupational specialization is incomplete.
• In developing countries production, bothagricultural and industrial is unorganized andscattered in these countries. This makes thecalculation difficult.
National Income Uses
Helps study the rate of growth of an economy.
Helps study inter-sector growth.
Enables study of inter-class income distribution.
Helps make international comparisons, living
standard of people.
Helpful in planning and evaluating plan progress.
Helps measure capacity of each country to bear
common burden of international institutions like
the UNO and I.M.F.
REFERENCES:
• MACROECONOMICS Theories and Policies WRITTEN BY RICHARD T.FROYEN, ISBN:0-02-339591-5
• MACROECONOMICS “6TH EDITION” WRITTEN BY N.GREGORYMANKIW, ISBN:978-0-230-22492-6
• NCERT BOOKS, CLASS 12, MACROECONOMICS.• Photocopy material provided by Dr. Annadurai C. sir.• www.wikipedia.com TOPIC: NATIONAL INCOME used just for
understanding purpose “NO MATERIAL” has been intentionallycopied from this site, if there is any resemblance with the onlinematerial it may be just a coincidence and we Regret for anyinconvenience caused.
Thank you
© VIT BUSINESS SCHOOL , VELLORE, TAMIL NADU.