•National Income: Concepts Measurements etc

National Income

• GDP at market prices : value of the outputs of all final goods & services during a year at market prices

• GNP at market prices=c+1+g+exp-imp

• GNP at market price=GNP at factor cost+ Indirect taxes-subsidies.

• GDP at factor cost=Aggregate gross value added in all the production activities in the economy during a year

Value added=compensation paid to primary factors of production used in productive activities GDP at factor cost=W+Int+R+P

GDP at MP=GDP at factor cost+indirect taxes-subsides

GNP at factor cost=GDP at factor cost+factor incomes received from abroad_factor incomes paid abroad.

• NNI at MP-Indirect taxes=NNI at factor cost

• NNI at factor cost=NNI at MP+subsidies-Indirect taxes

• Personal Income=National income-social security contribution -corporate income taxes-undistributed corporate profit +transfer payment

• Disposable income=personal income-personal taxes

• Disposable income=personal consumption+personal savings.

National Income at current prices and at constant prices

National output x current prices=

NICP=Monetary or nominal national income

National income at constant prices=Growth in the economy can be rightly assessed only when national income is measured at constant prices.

GNP deflator=Current year price index

Base Year price index

Methods of Estimation Income in India

• (1) Net output Method-output of each crop is estimated by multiplying the area sown by the yield per hectare for different regions.

• (II) Production of agriculture sector, animal husbandary,forestry, mining and factory establishment are multiplied with market price to obtain gross value of output.

• (III) Net Income Method (a) Balance Sheets of firms

• (b) Sample Surveys for finding out average earning per head in respect of small enterprises, transport sector, domestic services, rental incomes.

Limitations of National Estimation in India

• 1 Output of non monetized sector

• 2. Non availability of data about income of small producers or household enterprises

• 3 Absence of data on income distribution

• 4 Unreported legal incomes

Trends in National Income in IndiaYear Net National Product at

Factor Cost ( National Income ( Rs. Crore)

Index Number of National Product ( National Income) 1950-51=100

At current Prices

At 1999-2000 Prices

At Current Prices

At 1999-2000 Prices

1950-51 9152 204924 100.0 100.0

1960-61 15593 309045 170.4 150.8

1980-81 121129 583548 1323.5 284.8

1990-91 456409 967723 4986.8 472.3

2000-01 1700467 1647903 18579.7 804.2

2007-08 RE 3789482 2767682 ------------- ----------------

Main Features of the NNP Growth

• 1. Erratic growth.

• 2. Growth rate fluctuates with fluctuations in agriculture.

• 3. The growth rate at best is modest.

• 4. Post-1991 reform growth less fragile.

Services Led Growth

• By 1981-82, agriculture and allied activities were the dominant sector in India as they accounted for 41.1 percent of the net domestic product (NDP).

• Services sector expanded rapidly and as a result its share in the NDP was as large as 56.5 percent in 2006-07.

Inside the Macroeconomy: Aggregate Supply and Demand

• Definitions of Aggregate Supply and Demand

How do different forces interact to determine overall economic activity? Figure 20.5 shows the relationships among the different variables inside the macro-economy. It separates into two categories: those affecting aggregate supply and those affecting aggregate demand. Dividing variables into these two categories helps us understand what determines the levels of output, prices, and unemployment.

• The lower part Figure 20.5 shows the

forces affecting aggregate supply . Aggregate supply refers to the total quantity of goods and services that the nation’s businesses willingly produce and sell in a given period. Aggregate supply (often written AS) depends.

• This key diagram shows the major factors affecting overall economic activity. On the left are the major variables determining aggregate supply and demand; these include policy variables, like monetary and fiscal policies, along with stocks of capital and labour. In the center, aggregate supply and demand interact as the level of demand beats upon the available resources. The chief outcomes are shown on the right in hexagons: output, employment, the price level, and international trade.

• This key diagram shows the major factors affecting overall economic activity. On the left are the major variables determining aggregate supply and demand these include policy variables, like monetary and fiscal policies, along with stocks of capital and labor. In the center, aggregate supply and demand interact as the level of demand beats upon the available resources. The chief outcomes are shown on the right in hexagons: output, employment, the price level, and international trade.

• A price index is a measure of average level of price

• Inflation denotes a rise in general level of prices

Price Index

• Rate of inflation is the rate of change of the general price level and is measured as follows:

Rate of Inflation (year t):

Price level/(year t) – price level/(year t) x 100 Price level (year -1)

Consumer Price Index

• Most widely used measure of inflation

• A basket of goods generally consumed is chosen

• A price index is constructed accoeding to the economic importance of various commodities

• A base year is chosen

Whole Sale Price Index

It measures the level of price at the whole sale or producer stage ‘X’

Applications of Price Indices

• Fixation of dearness allowance

• Provide valuable information on economic stability & price stabilization

• Helps in macro economic management

• Evaluator of results of Monetary & Fiscal Policy