Meaning of National Income

HASMUKH GOSWAMI COLLEGE OF ENGINEERING

Prepared By:- NIREN PANCHAL(130240119542) HEMAL PATEL(130240119556) JAHNAVI PATEL(130240119557)

INTRODUCTION

• National income is the result of all economic activities of the nation in terms of money.

• The level of national income determines the business level and environment of the country.

• Also determine the level of aggregate demand for goods and services.

• Therefor, business decision makers needs to keep an eye on aspects of the national income, especially those having long-run implication.

DEFINITION OF NATIONAL INCOME

(1) " The labor and capital of a country, acting on its natural resources, produce annually a certain net aggregate of commodities, material and immaterial, including services of all kinds...and net income due on account of foreign investment must be added in. This is the true net National income or Revenue of the country or the national dividend."

- ALFRED MARSHALL

(2) "The national dividend or income consists solely of services as received by the ultimate consumers, whether from their material or from human environments. Thus, a piano or an overcoat made for me this year is not a part of this year's income, but an addition to capital. Only the services rendered to me during this year by these things are income"

- IRVING FISHER

Stock & Flow Concept

Emergency Fund

per month RS. 1000.(FLOW)at the end of the year RS. 12000.(STOCKS)

• In other words, monthly deposits saving is termed as 'flows' and the year-end savings balance is termed as 'stocks'.

• In economics, when inflows exceed outflows, a positive balance(surplus) build up. When outflows exceed inflows, a negative balance(deficit) results.

• If the deficit is covered by borrowing, the negative balance becomes a debt. Thus, deficit flows add to debt stock.

Valuation Approaches for National Income(1). National Income at Current Price

When goods and services produced by normal residents of a country in a given year are estimated at current prices, it is called national income at current prices.

(2). National Income at Constant Price

When goods and services produce by normal residents of a country during a year are valued at fixed prices, i.e. prices of the base year, it is called national income at constant prices.

Terminologies related to National Income

1.GROSS NATIONAL PRODUCT (GNP)2.GROSS DOMESTIC PRODUCT (GDP)3.NET NATIONAL PRODUCT(NNP)4.NET DOMESTIC PRODUCT(NDP)5.PERSONAL INCOME

6.DISPOSABLE INCOME

'Gross National Product - GNP'

GNP is a measure of a country's economic performance, or what its citizens produced (i.e. goods and services) and whether they produced these items within its borders.

GDP @ market price

National income

from abroad

GNP@ market price

'Gross Domestic Product - GDP'

The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

market value of all final

G&S produced in

domestic terretory

Income earned

locally by foreigners

GDP@ market

income earned

locally by foreigners

'Net National Product - NNP'

The monetary value of finished goods and services produced by a country's citizens, whether overseas or resident, in the time period being measured (i.e., the gross national product, or GNP) minus the amount of GNP required to purchase new goods to maintain existing stock (i.e., depreciation).

GNPdepreciatio

nNNP

'Net Domestic Product - NDP'

An annual measure of the economic output of a nation that is adjusted to account for depreciation, calculated by subtracting depreciation from the gross domestic product (GDP).

GDPdepreciatio

nNDP

'Personal Income'

Personal income refers to an individual's total earning from wages, investment enterprises, and other ventures. It is the sum of all the incomes actually received by all the individuals or household during a given period.Personal income is that income which is actually received by the individuals or households in a country during the year from all sources.

'Disposable income'

It is the income which individuals have left after satisfying all other Government obligations. So, disposable income is equal to personal income minus personal taxes and certain nontax payments.