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

2. 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.

3. 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.

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

5. 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

6. 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.

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

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

9. 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.

10. 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.

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

12. Per Capita Income = National Income Total Population

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

14. 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.

15. 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

16. 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

17. 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

18. Thank You