Department of Economics National Income Santosh Borkakati Asst. Professor Department of Economics Mangaldai College

National Income Is defined as total market value of all final goods & services produced by residents of a country while working both within or outside the domestic territory in an accounting year. NI is expressed in monetary terms. It includes only the value of final goods & services. NI Is expressed over 1 financial year. Only economic goods and services are included.

National Income -Excluded Items It excludes income from illegal activities – smuggling, black marketing, gambling etc., It does not includes transfer payments – old age pension, scholarship to students etc., Transfer payment are those earning for which no contribution is made to the flow of goods & services T.P are received without doing or producing any commodity or services. NI excludes sale & purchase of second hand goods.

Concepts of National Income GDP GNP NDPMP NDPFC NNPMP NNPFC Private Income Personal Income Personal Disposable Income

Concepts of National Income GDP : Value of all final goods and services produced within the domestic territory of a country during an accounting year. GNP = GDP + Net factor income from abroad

Gross Domestic Product (GDP) Gross National Product (GNP) It refers to the money value of all final goods & services produced within the domestic territory of a country . It refers to the money value of all the final goods & services by the normal residents of a country. It is a domestic concept as it is concerned with the domestic territory of a country. It is a national concept because it is concerned with the normal resident of a country. GNP = GDP + NFIA If we add net factor income from abroad to it, we get GNP. If we subtract NFIA from it we get GDP. GDP would be greater that GNP, if NFIA is negative. GNP>GDP if NFIA is positive.

Concepts of National Income NDPMP NNPMP NDPMP = GDPMP – Depreciation NNPMP = GNPMP – Depreciation

Concepts of National Income Net Domestic Product (NDPFC) Net National Product (NNPFC) NDPFC = NDPMP - Indirect Taxes + Subsidies NNPFC = NNPMP – Indirect Taxes + Subsidies

Private Income Private income is income obtained by private individuals from any source, productive or otherwise, and the retained income of corporations. Private Income= NNPFC + Transfer Payments + Interest on Public Debt – Social Security Contributions – Profits and Surpluses of Public Sector Undertaking.

Personal Income Personal Income is the total income received by the individuals from all sources, productive or otherwise, before direct taxes. Personal Income= NNPFC+ Transfer Payments + Interest on Public Debt – Social Security Contributions – Profits and Surpluses of Public Sector Undertaking – undistributed corporate profit – profit taxes.

Disposable Income Disposable income is the actual income available to the individuals for expenditure. Disposable Income= Personal Income – Direct Taxes

Per Capita Income = National Income Total Population

Methods of Measuring NI Value added method/Product Method Income method Expenditure method

Steps involved in Value Added Method Value added refers to the addition of value to the raw material (intermediate goods) by a firm, by virtue of its productive activities. It is the contribution of an enterprise to the current flow of goods and services. It is calculated as the difference between value of output and value of intermediate consumption. Value Added = Value of Output – Intermediate Consumption Example of Concept of Value Added: Suppose a baker needs only flour to produce bread. He purchases flour as inputs worth Rs.500 from the miller and then by virtue of its productive activities, converts the flour into bread and sells the bread for Rs. 700. The baker has added a value of Rs. 200 to the total flow of final goods and services in the economy.

Steps involved in Value Added Method Steps of Value Added Method: The first step is to identify and classify all the producing enterprises of an economy into primary, secondary and tertiary sectors. In the second step, Gross Value Added at Market Price (GVAMP) of each sector is calculated. Total of GVAMP of all sectors give GDPMP,. GDPMP.  = ∑GVAMP

Steps involved in Income Method Identifying the producing units Classifying the factor income Compensation of Employees Operating Surplus Mixed Income of the Self Employed 1.Wages & Salaries in Cash 2. Compensation 3. Private Pension Income from property (Rent , Interest, Royalty) 2. Income from Entrepreneur---ship (Profits) 1. Profession of Doctors, Lawyers

Steps involved in Expenditure Method To identify economic units incurring final expenditure. Classification of final expenditure. Private final consumption expenditure Govt. final consumption expenditure Gross fixed capital formation Change in stocks Net Exports GDPMP = PFCE + GFFCE + GFCF + Change in Stocks + Net Exports

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