Economic Trends National Income and Its Components
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Transcript of Economic Trends National Income and Its Components
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BUSINESS ENVIRONMENT
UNIT II
ECONOMIC TRENDS:
OVERVIEW
SUBJECT EXPERT
CA. AMITA BISSA
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OBJECTIVE OF THE LECTURE
• METHODS OF COMPUTATION OF NATIONAL
INCOME
• THE CONCEPT OF NATIONAL INCOME AS AWHOLE
• TO KNOW NATIONAL INCOME OF OUR
COUNTRY
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NATIONAL INCOME
National Income
The sum total of the values of all goods and
services produced in a year & it also includes
net earned foreign income. It is the money
value of the flow of goods and services
available in an economy in a year. National
income is a flow not a stock.
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NATIONAL INCOME
National Income: DEFINTION
National Income Committee of India 1951defines National Income as follows:
“ A national income estimate measures the
volume of commodities and services turned outduring a given period counted without
duplication.”
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National Income concepts
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Gross DomesticProduct - GDP
Gross NationalProduct – GNP
Net NationalProduct – NNP
NATIONAL INCOME CONCEPTS
PersonalIncome – PI
DisposablePersonal Income
– DPI
Per capita
Income – PCI
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GROSS DOMESTIC PRODUCT
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GROSS DOMESTIC PRODUCT
Gross Domestic Product (GDP) is a measure
of the income and expenditures of aneconomy. It is the total market value of all
final goods and services produced within a
country in a given period of time.
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MEASURE OF GROSS DOMESTIC
PRODUCTOutput is valued at market prices . It records only
the value of final goods , not intermediate goods
(the value is counted only once). It includes both
tangible goods (food, clothing, cars) and intangible
services (haircuts, housecleaning, doctor visits).
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MEASURE OF GROSS DOMESTIC
PRODUCTIt includes goods and services currently produced ,
not transactions involving goods produced in the
past. It measures the value of production within
the geographic confines of a country. It measures
the value of production that takes place within aspecific interval of time , usually a year or a quarter
(three months)
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WHAT IS COUNTED IN GROSS
DOMESTIC PRODUCT
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COUNTED IN GROSS DOMESTIC
PRODUCT
GDP includes all items produced in the economy
and sold legally in markets
BUT
GDP excludes most items that are produced and
consumed at home and that never enter the
market - place. It excludes items produced and
sold illegally, such as illegal drugs.
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National Income – Valuation
method
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DOUBLE COUNTING- NATIONAL
INCOMEIf steel has been evaluated in industrial production, it should
not be included while calculating the value of steel products,
viz, machines and motor cars.
To avoid double counting or multiple counting, two methods
are used
Final products method
Value added method
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Final Product Method
Adding the value of final products only
Value added method:
Go on adding the values created at each stage in the
manufacture of a commodity .Then all such values createdare added up together to arrive at the national income of
the country
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GROSS NATIONAL PRODUCT
Gross National Product
Gross National Product (GNP) is the total income
earned by a nation’s permanent residents
(called nationals). It differs from GDP by
including income that our citizens earn abroad
and excluding income that foreigners earn here.
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GROSS NATIONAL PRODUCT IN
EQUATION FORMGNP=GDP+X-M
X=Income earned & received by nationals within the
boundary of foreign countries.
M=Income received by foreign nationals from with in
the country.
If X=M ; then GNP=GDP
Similarly, in a closed economy X=M=O, then also
GNP=GDP
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NET NATIONAL PRODUCT
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NET NATIONAL PRODUCT
Net National Product (NNP) is the total income of
the nation’s residents (GNP) minus losses from
depreciation.
Depreciation is the wear and tear on the economy’s
stock of equipment and structures Therefore
NNP=GNP-Depreciation
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National Income
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NATIONAL INCOME
National Income is the total income earned by a
nation’s residents in the production of goods
and services. It differs from NNP by excluding
indirect business taxes (such as sales taxes) and
including business subsidies.
NI = NNP- Indirect Tax + Subsidy
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Personal Income
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PERSONAL INCOME
Personal Income earned by all the individuals
and institutions during a year in a country .
The entire national income does not reach
individuals and institutions
- A part of it goes by way of corporate taxes
- Undistributed profits
- Social security contributions.
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PERSONAL INCOME
Persons sometimes gets income without any
productive activities. They are called transfer
payments. Example
Unemployment benefits, old age pensions etc.
such transfer payments are not included in
National Income but they are included in
personal income
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PERSONAL INCOME
PI is computed using the following formula
PI = NATIONAL INCOME- ( CORPORATE TAXES,UNDISTRIBUTED PROFITS, SOCIAL SECURITY
CONTRIBUTIONS) + TRANSFER PAYMENTS
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Disposable Personal
Income
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DISPOSABLE PERSONAL INCOME
Disposable Personal Income is the income that
household and non-corporate business is left
after satisfying all their obligations to the
government. It equates personal income minus
personal taxes and certain non tax payments.
DIP = Personal Income(PI) - Direct Taxes
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Per Capita Income
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PER CAPITA INCOME
If National Income is divided by total
population , we get per capita income
Per Capital Income = NATIONAL INCOME
POPULATION
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COMPUTATION
OF NATIONAL
INCOME
PRODUCTION METHOD
OR
CENSUS METHODINCOME METHOD
EXPENDITURE METHOD
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Production Method
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PRODUCTION METHOD
WHERE ,
O = OUTPUT
C = CONSUMPTION OF GOODS
I = INVESTMENT GOODS
O= C +I
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INCOME METHOD
According to this method, net
income of individuals andbusiness houses during a year are
added to know the national
income.
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INCOME METHOD
Only those incomes earned and received forproducing goods and for rendering services are to
be counted
Transfer payments such as old age pensions ,
widow pensions and unemployment benefits etc
should not be counted as these are the incomes
received without contributing to the production
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INCOME METHOD
People get incomes in the form of Rents,
wages or salaries, interest and profit
The formula is
Y = C + S
Here Y stands for Total Income
C stands for consumption and
S stands for Savings
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Expediture Method
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EXPENDITURE METHOD
One man’s income is another man’s
expenditure Therefore, national income can be
arrived at by adding the total expenditure of
individual and business firms during a year.
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EXPENDITURE METHOD
Expenditure or outlay on final products takes place in
three ways
1. Expenditure by consumers on goods and services.
2. Expenditure by entrepreneurs on capital and
investment goods.
3. Expenditure by government on consumption and
capital goods
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EXPENDITURE METHOD
WHERE ,
Y = TOTAL EXPENDITURE
C = CONSUMPTION EXPENDITUREI = INVESTMENT EXPENDITURE
Y= C +I
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DIFFICULTIES IN COMPUTING
NATIONAL INCOME
The following are the practical difficulties in the
measurement of national income
1. The statistics are not fully available
2. Non-monetized sector is dominant
3. Most people take out their livelihood from more than
one activity
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DIFFICULTIES IN COMPUTING
NATIONAL INCOME
4. In backward economies like India, particularly in the rural
sector.
5. In developing economics like India, particularly in the
rural sector, the cultivators and small producers are
illiterate and they do not keep books of account. This is the
serious difficulty in the calculation of national income.
6. Avoidance of double counting becomes complicated.
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GDP real Growth Rate
( in percentage)
4.30%
8.30%
6.20%
8.40% 8.20%
9%
7.40%
2003 2004 2005 2006 2007 2008 2009
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CURRENT ECONOMIC
PROFILE OF INDIA
Gross Domestic Product during 2011-12 [at
current prices] : US$ 1680.69 billion
(Rs 82.8 trillion)
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CURRENT ECONOMIC
PROFILE OF INDIA
Gross Domestic Product during 2011-12 [at
constant (2004-05) prices]: US$ 1060.42 billion
(Rs 52.2 trillion)
Gross Domestic Product growth rate during 2011-
12 : 6.9 per cent
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CURRENT ECONOMIC
PROFILE OF INDIA
Per capita income during 2011-12
[at current prices] : US$ 1237.13
A (Rs 60972 )
Per capita income during 2011-12
[at constant (2004-05) prices] : US$ 771.72 (Rs 38005
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CURRENT ECONOMIC
PROFILE OF INDIA
Per capita income during 2011-12
[at current prices] : US$ 1237.13 (Rs 60972 )
Per capita income during 2011-12
[at constant (2004-05) prices] :
US$ 771.72 (Rs 38005)
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SUMMARY