1. NATIONAL INCOME National income is the comprehensive measure of the economic activities of the nation. It refers to the money value of the flow of goods and services available annually in an economy

2. It is used as a measure of the standard of living of the people in the nation and the distinction between the rich, middle and poor countries based on per captia income. NATIONAL INCOME 3. Income Concept Gross National Product Gross Domestic Product Net National Product Net Domestic Product NATIONAL INCOME 4. GROSS DOMESTIC PRODUCT Gross domestic product (GDP) is a measure of the income and expenditures of an economy. It is the total market value of all final goods and services produced within a country in a given period of time. 5. SIGNIFICANCE Benchmark to compare a country. It helps us to know whether the average standard of living of the population has risen or not (GDP per capita). It shows growth of an economy when the results are taken over time. 6. THE MEASUREMENT OF GROSS DOMESTIC PRODUCT GDP can be determined in three ways, all of which should in principle give the same result. They are The product (or output) approach, The income approach, the expenditure approach. 7. NATIONAL INCOME National income is the comprehensive measure of the economic activities of the nation. It refers to the money value of the flow of goods and services available annually in an economy 8. Income Concept Gross National Product Gross Domestic Product Net National Product Net Domestic Product NATIONAL INCOME 9. THE MEASUREMENT OF GROSS DOMESTIC PRODUCT GDP can be determined in three ways, all of which should in principle give the same result. They are The product (or output) approach, The income approach, the expenditure approach. 10. The Expenditure Approach to GDP GDP is the Market Value . . . Output is valued at market prices. . . . Of All Final . . . It records only the value of final goods, not intermediate goods (the value is counted only once). Goods and Services It includes both tangible goods (food, clothing, cars) and intangible services (haircuts, housecleaning, doctor visits). 11. The Output or Value Added Method Valuing of all final goods and services produced during the year or by aggregating the value imparted to the intermediate product at each stage of production by industries and productive enterprise in the economy. 12. Calculating GDP by adding up expenditures on all income earned by the suppliers of the resources used to produce the total output during the year. GDP = Aggregate Income = Wages + Rent + Interest + Profit The Output or Value Added Method 13. The Expenditure Approach to GDP GDP is the Market Value . . . Output is valued at market prices. . . . Of All Final . . . It records only the value of final goods, not intermediate goods (the value is counted only once). Goods and Services It includes both tangible goods (food, clothing, cars) and intangible services (haircuts, housecleaning, doctor visits). 14. The Expenditure Approach to GDP . . . Produced . . . It includes goods and services currently produced, not transactions involving goods produced in the past. . . . Within a Country . . . It measures the value of production within the geographic confines of a country. 15. . . . In a Given Period of Time. It measures the value of production that takes place within a specific interval of time, usually a year or a quarter (three months). The Expenditure Approach to GDP 16. Calculating GDP by adding up expenditures on all final goods and services produced during the year. Consumption (C) Investment (I) Government Spending (G) Net exports: exports minus imports (X- M) GDP= C + I + G + (X-M) The Expenditure Approach to GDP 17. Consumption (C): The spending by households on goods and services, with the exception of purchases of new housing. Investment (I): The spending on capital equipment, inventories, and structures, including new housing. The Expenditure Approach to GDP 18. Government Purchases (G): The spending on goods and services by local, state, and federal governments. Does not include transfer payments because they are not made in exchange for currently produced goods or services. Net Exports (NX): Exports minus imports. The Expenditure Approach to GDP 19. LIMITATIONS OF GDP Assumes that every monetary transaction adds to well-being Ignores everything that happens outside the realm of monetized exchange Treats crime, divorce and natural disasters as economic gain Ignores the non-market economy of household and community Treats the depletion of natural capital as income Takes no account of income distribution Ignores the drawbacks of living on foreign assets 20. GDP AND ECONOMIC WELL-BEING GDP is the best single measure of the economic well- being of a society. GDP per person tells us the income and expenditure of the average person in the economy. 21. Higher GDP per person indicates a higher standard of living. GDP is not a perfect measure of the happiness or quality of life, however. GDP AND ECONOMIC WELL-BEING 22. GDP USD 590 billion GDP growth rate 9 % Services contribution 54 % FDI limit not 100 percent in major industry sectors such as Telecom, Semiconductors, Automobiles, etc. Balance of Trade USD (- )46.2 billion Investment goal USD 250 billion 2006 GDP USD 750 billion GDP growth rate 9.5% Services contribution 60 % FDI limit is expected to be close to 100 percent in major industry sectors such as Telecom, Semiconductors, Automobiles, etc. Balance of Trade Should increase with surging exports as compared with imports Investment goal USD 305 billion 2008 GDP USD 900 billion GDP growth rate 9% Services contribution 60-65 % FDI limit is expected to be 100 percent in major industry sectors such as Telecom, Semiconductors, Automobiles, etc. Balance of Trade Should be positive with increased level of exports as compared with imports Investment goal USD 2010 GROWTH EXPECTED IN INDIA To sustain the GDP growth of more than 8 percent, India requires an investment of USD 1.5 trillion in the next five years GROWTH EXPECTED IN INDIA 23. Some things that contribute to well-being are not included in GDP. The value of leisure. The value of a clean environment. The value of almost all activity that takes place outside of markets, such as the value of the time parents spend with their children and the value of volunteer work. GDP AND ECONOMIC WELL-BEING 24. Summary GDP is the market value of all final goods and services produced within a country in a given period of time. GDP is divided among four components of expenditure: consumption, investment, government purchases, and net exports. 25. Summary GDP is a good measure of economic well-being because people prefer higher to lower incomes. It is not a perfect measure of well-being because some things, such as leisure time and a clean environment, arent measured by GDP. 26. GROSS NATIONALPRODUCT Gross National Product(GNP) Is The Total Value Of All Final Goods And Services Produced Within A Nation In The Particular Year 27. The GNP at market price stands for the monetary value of all goods and services that are: Currently produced. Sold through the official market. Not used for resale. Produced by owned national resource. Valued at market prices for the given time period. GROSS NATIONALPRODUCT 28. There are three exception with regard to rule while calculating GNP Self consumption of products Rent owner occupied houses included in GNP Expenditure on public administration like national defense, police, legislative assemblies etc. GROSS NATIONALPRODUCT 29. National income and output (Billions of dollars) Period Ending As On. Gross National Product XXX Net Income Receipts From Rest Of The World Xx Income Receipts Xx Income Payments Xx Gross Domestic Product XXX Private Consumption Of Fixed Capital Xx Government Consumption Of Fixed Capital Xx Statistical Discrepancy Xx National Income XXX Computing national income 30. NOMINAL AND REAL INTEREST RATE Nominal interest rate are the rate that has been adjusted to remove the effects of inflation to reflect the real cost of funds to the borrower. It refers to the rate of interest before adjustment for inflation 31. Nominal interest rates includes: Government bonds Corporate bonds Corporate deposits Bank deposits Bank loans NOMINAL AND REAL INTEREST RATE 32. REAL INTEREST RATE An real interest rate is the rate that are adjusted to remove the effects of inflation to reflect the real cost of fundsto the borrower and the real yield to the lender. It is calculated as the amount by which the nominal interest rate is higher than the inflation rate. NOMINAL AND REAL INTEREST RATE 33. Real Interest Rate is calculated as : RIR= nominal interest inflation rate(expected or actual). The real interest rate is the growth rate of purchasing power derived from the investment. By adjusting the nominal interest rate to inflation, we keep the purchasing power of given level of capital constant over time. NOMINAL AND REAL INTEREST RATE 34. NOMINAL AND REAL INTEREST RATE- difference Generally real variable is the one where the effect of inflation have been excluded in real interest. Where as nominal variable is one where the effect of inflation is not considered while calculating nominal interest. Thus we can concluded the difference by following calculation as real interest rate = nominal interest rate expected inflation 35. Purchasing power parity Purchasing-power parity is a theory of exchange rates whereby a unit of any given currency should be able to buy the same quantity of goods in all countries. Example: price of parker pen= Rs. 90 = $ 2 Then, the PPP is said as $1 = Rs. 45. 36. The Basic Logic of Purchasing-Power Parity According to the purchasing-power parity theory, a unit of any given currency should be able to buy the same quantity of goods in all countries. 37. Basic Logic of Purchasing-Power Parity The theory of purchasing-power parity is based on a principle called the law of one price. According to the law of one price, a good must sell for the same price in all locations. 38. Basic Logic of Purchasing-Power Parity If the law of one price were not true, unexploited profit opportunities would exist. The process of taking advantage of differences in prices in different markets is called arbitrage. 39. Basic Logic of Purchasing-Power Parity If arbitrage occurs, eventually prices that differed in two markets would necessarily converge. According to the theory of purchasing-power parity, a currency must have the same purchasing power in all countries and exchange rates move to ensure that. 40. Implications of Purchasing-Power Parity If the purchasing power of the dollar is always the same at home and abroad, then the exchange rate cannot change. The nominal exchange rate between the currencies of two countries must reflect the different price levels in those countries. 41. Implications of Purchasing-Power Parity When the central bank prints large quantities of money, the money loses value both in terms of the goods and services it can buy and in terms of the amount of other currencies it can buy. 42. Limitations of Purchasing-Power Parity Many goods are not easily traded or shipped from one country to another. Tradable goods are not always perfect substitutes when they are produced in different countries. 43. TRENDS IN NATIONAL INCOME OF INDIA 1. GDP Growth rate of India (%) 2005-06 9.5% 2006-07 9.7% 2007-08 9.2% 2008-09 6.7% 2009-10 7.2% Note:2004 -05 is takes as the base year (for constant price) Source :Economic Survey 2009-10 44. TRENDS IN NATIONAL INCOME OF INDIA COUNTRY INDIA INTEREST RATE 5.25% GROWTH RATE 8.9% INFLATION RATE 9.70% 45. 2 . Growth in per capita income (Rs) at current price and at 2004-05 (constant price) Current Price 2005-06 2006-07 2007-08 2008-09 2009-10 27,183 31,080 35,430 40,141 43,749 Constant Price 32,012 34,533 37,328 38,695 40,745 Note:2004 -05 is takes as the base year (for constant price) Source :Economic Survey 2009-10 TRENDS IN NATIONAL INCOME OF INDIA 46. SECTORWISERATE OF GROWTH AT FACTORCOST AT 2004-2005 PRICES (PER CENT) 2005-06 2006-07 2007-08 2008-09 2009-10 Agriculture 5.2 3.7 4.7 1.6 -0.2 Mining 1.3 8.7 3.9 1.6 8.7 Manufacturing 9.6 14.9 10.3 3.2 8.9 Electricity, 6.6 10.0 8.5 3.9 8.2 Gas & Water Supply Construction 12.4 10.6 10.0 5.9 6.5 Trade, Hotels 12.4 11.2 9.5 5.3 8.3 & Restaurants Banks, Insurance 12.8 14.5 13.2 10.1 9.9 and Real Estate Community, 7.6 2.6 6.7 13.9 8.2 and Social Services Source :Economic Survey 2009-10 47. TRENDS FOR INTERSTATE VARIATIONIN NATIONAL INCOME ANDGDP There is vast variation amongst the Indian states w.r.t per capita income and their contribution to national income. CONTRIBUTION OF STATES IN INDIAS NDP High Income States % share in NDP MAHARASHTRA 13.3 % UTTAR PRADESH 8.0 % ANDHRA PRADESH 7.7 % WEST BENGAL 7.2 % GUJARAT 6.8 % CONTRIBUTION MAHARASHT RA UTTAR PRADESH ANDHRA PRADESH WEST BENGAL GUJARAT 48. Low income states % share in NDP JHARKHAND 1.6 ASSAM 1.7 CHATTISGARH 1.8 ORISSA 2.4 BIHAR 2.7 CONTRIBUTION JHARKHAND ASSAM CHATTISGARH ORISSA BIHAR Per capita income of different states High income states Per capita income (Rs p.a) Low income states Per capita income (Rs p .a) GOA 1,05,582 BIHAR 11,135 HARYANA 58,531 UTTAR PRADESH 16,060 MAHARASHTRA 47,051 MADHYA PRADESH 18,051 GUJARAT 45, 773 JHARKHAND 19,928 PUNJAB 44,923 ORISSA 23,403 49. From the above it is clear that planning in India has not been successful in removing disparities amongst the states The disparities are also attributed to vast differences in areas and population of the states. Summary 50. Summary Punjab and Haryana have grown on account of their agricultural prosperity Maharashtra, Gujarat and Goa have shown appreciable industrial growth