national income by dr tsering lamchung
TRANSCRIPT
National income is a measure of the total value of the goods and services (output) produced by a country over a period of time (usually during a year).
2
Definition
Gross National Product: Gross National Product (GNP) is the total value of goods and services produced and income received in a year by domestic residents of a country. It includes profits earned from capital invested abroad also.
G N P at Market prices: The GNP at market prices means the gross value of final goods and services produced annually in a country plus net income from abroad.
3
Terms & concepts
G N P at Factor cost: The GNP at factor cost is the sum of the money value of the income produced by various factors of production annually in a country. GNP at factor cost = GNP at market prices –
Indirect taxes + Subsidies
4
Gross Domestic Product (GDP) is the total value of goods and services produced by the factors of production located within the country in a year. The factors of production may be owned by the citizens or foreigners.
GDP = GNP – Net income earned from abroad
5
Gross Domestic Product
The NDP is calculated by subtractingthe depreciation from GDP. Depreciation means wear & tear.
NDP= GDP – Depreciation
6
Net Domestic product
It is the income derived from national income by subtracting the sum of government property income and profits of government enterprises. Thus
Private Income = National Income+ Transfer payments + Interest on public debt – Social security- profit and surpluses of public undertakings.
7
Private Income:
Personal income is the total income received by the individuals of a nation before direct taxes in a year. It is derived from private income by subtracting the savings of the private corporate sector and the corporation tax.
Personal Income = Private income Undistributed corporate profits – Profit taxes taxes
Disposal income: disposal income is It is the amount of money of individual after paying the direct taxes.
Disposable Income = Personal Income – Direct tax 8
Personal Income
9
The measure uses the current market prices to compute the value of output. The current prices always are higher than real value due to taxes and inflation. Therefore, national income estimated at ‘current price’ includes effects of inflation and taxes.
10
National income at Current Prices.
measures the national income after eliminating the effect of inflation & price rise. It is based on unchanged price of output. National income at ‘constant price’ is computed based on the real worth of purchasing power of income, it is also called as REAL NATIONAL INCOME Base year (=100)
Real Income = NNP of current year X ---- Current year
index 11
National income at constant price
The average income of the people of a nation in a given year is called as per capita income. The per capita income per person is an indicator to show the living standards of people in a country. If real Per Capta Income increases, it is considered as an improvement in the overall living standard of people.
National Income of 2001 eg.Per capita Income for 2001 = --------------
Total population in 2001 12
Per Capita Income:
Where : C : Consumption I : Investment G : Government spending X : Exports M : Imports
13
GDP = C + I + G+(X-M) GDP = C + I + G+(X-M)
C : consumption Includes ::
Personal expenditures mainly consists of: food householdsmedical expenses rent, etc
14
I : investments by business or households in capital.
Includes:Construction of a new mine.Purchase of machinery or equipment for factory.
Purchase of software.Expenditure on new houses. Buying goods and services.
15
G : Total government expenditures on final goods and services.
Includes ::Investment expenditure by the government.
Purchase of weapons for the military
Salaries of public servants.
16
M : gross imports.Includes ::
any goods or services imported for consumption
X : Gross Exports.Includes ::
all goods and services produced for overseas consumption.
17
1)The study of national income serves various purposes such as economy, production, trade, consumption, policy formulation, etc.
2)To measure the size of economy and level of country’s economic performance.
3)To formulate projection for future development of the economy.
18
IMPORTANCE OF National income ESTIMATION
4)To formulate suitable development plans and policies to boost growth rates.
5)To fix development targets for different sectors of economy on the basis of performance.
6)To assist business firms in forecasting future demand for their products.
7)To compare people’s living standards of different countries 19
There are three methods used to calculate national income. These are as follows;
1)Product or Output approach2)Income approach3)Expenditure approach
20
Methods of estimation of National Income
The GDP by output or product method are calculated by adding the total value of output produced by all activities during a year. The main problem of the method is the problem of double-counting.
The output of one business is the inputs of other business. For example, the milk production is the input of milk processing industry (Amul).
21
Output or Product Method
In income method, the national income is calculated by adding all the income earned by factors of production which are engaged in production process. The incomes included to compute the national income are; Wages and salaries, income of self-employed, profits and dividends of business corporations, interest, rent, surplus of government enterprises and net flow of income from abroad..
22
Income Method
GDP = E = C + I + G + (X-M)Most Commonly used method.In the expenditure method, GDP is calculated
by adding all expenditures made in the economy. The basic components of expenditure are:
C = Consumption expenditures I = Domestic investment G = Government expenditures X = Exports of goods and services M = Imports of goods and services NR = Net income receipts from assets
abroad23
Expenditure Method:
24
Annual growth of indian economy
2005-06
2006-07
2007-08
2008-09
2009-10PE
2010-11QE
2011-12
Agriculture, forestry & fishing
5.1 4.2 5.8 0.1 1.0 7.0 2.5
Mining & quarrying 1.3 7.5 3.7 2.1 6.3 5.0 2.2Manufacturing 10.1 14.3 10.3 4.3 9.7 7.6 3.9Electricity, gas & water supply
7.1 9.3 8.3 4.6 6.3 3.0 8.3
Construction 12.8 10.3 10.8 5.3 7.0 8.0 4.8Trade, hotels, transport & communication
12.1 11.7 10.7 7.6 10.3 11.1 11.2
Financing, insurance, real estate &business services
12.6 14.0 12.0 12.0 9.4 10.4 9.1
Community, social & personal services
7.1 2.8 6.9 12.5 12.0 4.5 5.9
GDP at factor cost 9.5 9.6 9.3 6.7 8.4 8.4 6.9
25
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11Q
2011-12
Total final consumption expenditure
8.7 7.7 9.4 7.7 8.3 8.1 6.0
1.1 Private final consumption expenditure
8.6 8.5 9.4 7.2 7.2 8.1 6.5
1.2 Government final consumption expenditure
8.9 3.8 9.6 10.4 14.3 7.8 3.9
Gross capital formation
16.3 15.3 -
17.2 -1.6 11.6 11.1 5.8
2.1 Gross fixed capital formation
16.2 16.2 13.8 16.2 6.8 7.5 5.6
2.2 Changes in stocks 26.7 31.6 31.3 -
-51.4 63.2 37.4 2.9
3. Exports 26.1 20.4 5.9 14.6 -4.8 22.7 14.34.imports 32.6 21.5 -
10.2 22.7 2.2 15.6 17.5
Growth in GDP at 2004-05 market prices
9.3 9.3 9.8 3.9 8.2 9.6 7.526
The measurement of national income encounters many problems.
Problem of black money: In a country where illegal activities, illegal businesses and corruption are high, circulation of black money is also high. It has created parallel economy. GDP does not take into account the parallel economy as transaction of black money has not registered.
27
Problems in estimation of National Income
Non-Monetization: In rural economy, some portion of transactions occurs informally such as bartar system.The presence of such non-monetary economy in developing countries keeps the GDP estimates at lower level than actual.
Household Services: The national income ignores domestic work, housekeeping and social services. Such valuable work rendered by women at home does not enter our national accounting.
28
Social Services :It ignores volunteer and unpaid social services. Such as the services of Mother Teresa has helped millions of poor, orphans and diseased but it is not included in GDP.
Environmental Cost: National income estimation does not distinguish between environmental-friendly and environmental-hazardous industries. The cost of pollution by the industries is not included in the estimation.
29
The Gross Domestic Product (GDP) in India was worth 1847.98 billion US dollars in 2011,
The GDP value of Indian economy grew by 6.9 per cent in 2011-12 .
India’s contributes 2.98 percent of the world economy.
The share of services sector in India’s GDP was 55.1 per cent in 2010-11
30
Summary of India’s GDP in 2011
Agriculture sector contributed 13.9 per cent of GDP in 2011.
Contribution of livestock was 4% in total GDP.
The manufacturing sector grew by 2.7 per cent.
Export value was 300 bn $ import value was 485 bn $ in 2011.
31
32
fromfrom Dr Tsering Lamchung,(ladakh) Dr Tsering Lamchung,(ladakh)
[email protected]@gmail.com
Thanks!Thanks!