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National income accounting
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National income accounting






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    National income accounting National income accounting Presentation Transcript

      • Gross National Product
      • Definition : Total market value of all goods and services produced in any given
      • year. GNP includes only currently produced goods and services in a year.
      • Components
      • Value of final consumer goods and services produced in a year and consumed
      • by the household which is referred to as consumption by households.
      • Value of new capital goods produced and addition to the inventories of goods in a
      • year such as raw materials, unfinished goods and consumer goods produced but
      • not sold.( Gross Private Investment)
      • Purchase of goods and services by the government denoted by G.
      • Net Exports i.e X n = X-M.
      • Net Factor income from abroad.
      • GDP mp = GNP mp – Net factor Income From Abroad
      • GNP mp = GDP mp + Net Factor Income From Abroad
    • Methods of Estimation of GNP
      • Expenditure or Output approach to GNP : Nation’s total expenditure on goods and services produced during the year. Thus its constituents are following
      • Personal Consumption Expenditure
      • Includes Durable as well as Non durable goods and services produced during the year. Purchase of house not included.
      • Gross Domestic Private Investment
      • Includes Private Investment in capital goods such as buildings,machineries,plant equipment etc.,expenditure on purchase of house and net addition to business inventories.
      • Government’s purchase of goods and Services
      • Includes purchase of market consumer goods such as paper, stationary etc., Investment goods and services.
      • Net Foreign Investment.
      • Exports are included and value of imports is deducted.
    • 2. Income or allocation approach to GNP
      • Wage and salaries of employees during the year plus certain supplements.
      • Income of non company businesses such as proprietors, partners and self employed persons.
      • Rental Incomes earned by individuals on agricultural and non agricultural property.
      • Corporate profits plus Corporate profits taxes plus dividends paid to the shareholder.
      • Net interest earned by the individuals
      • Indirect taxes
      • Depreciation of capital goods
    • Net National Product
      • NNP= GNP- Depreciation
      • Known as National Income at market prices
      • Better index than GNP as depreciation is not included in NNP
      • Gives an idea of net increase in production.
      • Helpful in analysis of long run problem of maintaining physical supply of goods.
      • Highly useful concept for the study of growth economics.
      • However fixation of depreciation charges is an issue.
    • National Income
      • Known as National Income at Factor cost.
      • It is the total of all incomes payments received by the factors of production i.e. land, labour and capital.
      • National Income = Net national product-Indirect taxes + subsidies- profits accruing to the government.
      • It helps us to know the distribution side of the national output that is how the national output is distributed among the various factors of production.
    • Personal Income
      • It is that income which is actually received by the individuals or households in a country during the year from all sources.
      • Personal Income = National income – Corporate Income Taxes – Undistributed Corporate Profits – Social Contributions + Transfer Payments
      • It is a useful tool for estimating the potential purchasing power of the households in an economy.
      • It helps to measure the general welfare of the people in the country.
      • However, it does not tells us the actual amount of money available to the households for spending and saving.
    • Disposable Personal Income
      • That part of personal income which is left behind after payment of personal direct taxes is called disposable personal income.
      • Disposoable Personal Income=Personal Income – Personal direct Taxes.
      • Disposoable Personal Income = Consumption + Saving.
      • Money burden of Personal direct taxation can be find out with the help of personal income
    • Difficulties in calculation of National Income
      • Statistics inadequate and unreliable
      • Large non-monetized sector in underdeveloped economies.
      • Majority of small producers in underdeveloped countries are illiterate and ignorant.
      • Occupational specialization is not there in these countries.
    • Importance of National Income
      • Gives the idea of aggregate production in the country.
      • Increasing national Income is an indicator of economic progress.
      • Economic welfare is closely connected with the magnitude of National income
      • Contribution from various sectors can be known.
      • Gives a picture about distribution of income among the various sections.
      • Volume of consumption, savings and investment in the country.
      • Formulation of economic policies and planning.
    • Relation between Economic Welfare and National Income
      • The effect of National income on economic welfare an be studied in two ways
      • The change in the size of National Income: Positive change in NI increases its volume, as a result people consume more of goods and services, which leads to increase in economic welfare and vice versa. This relationship depends on various factors.
      • Only real increase in national income increases economic welfare.
      • NI cannot be a reliable index if per capita income is not taken into account.
      • Sometimes even with increase in NI and Per capita income economic welfare decreases due to unequal distribution of economic wealth.
      • Influence of increase in National Income on economic welfare also depends on the spending habit of the consumers.
      • The change in distribution of National Income
      • Change can be from rich to poor and from poor to rich and economic welfare is said to increase when former situation is implemented.