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    4 national income 4 national income Presentation Transcript

    • National Income & Related Concepts
    • National Income
      • National income is the money value of all the final goods and services produced by a country during one year.
    • National Income at current prices
      • Goods and services are valued at the prices prevailing in the markets in that particular year.
      • E.g. National Income of 2009-10: goods and services are valued at prices prevailing in the year 2009-10.
    • Estimates of GDP, NDP, NNP and Per Capita Income 1999-2000 to 2004-2005 (at current prices) (Rs. crore) Year GDP at factor cost (Rs. Crore) NDP at factor cost (Rs. Crore) NNP at factor cost (Rs. Crore) Per capita income (Rs.) 1993-94 Series New Series 1993-94 Series New Series 1993-94 Series New Series 1993-94 Series New Series 1999-00 1761838 1792292 1579479 1605643 1564048 1590212 15625 15886 2000-01 1902999 1930184 1705104 1727452 1686995 1704719 16555 16729 2001-02 2081474 2097446 1863795 1876285 1848229 1856217 17823 17883 2002-03 2254888 2255574 2021936 2019972 2008770 2003282 19040 18988 2003-04 2519785 2543396 2266148 2286826 2252070 2268576 20989 21142 2004-05 2830465 2843897 2553334 2549139 2535627 2531223 23241 23222 Growth rates (%)                       2000-01 8 7.7 8 7.6 7.9 7.2 6 5.3 2001-02 9.4 8.7 9.3 8.6 9.6 8.9 7.7 6.9
    • National Income at constant prices
      • Goods and services are valued at the price prevailing in the base year .
      • E.g. National Income of year 2009-10 at 1999-2000 prices (prices of goods and services prevailing in year 1999-2000).
    • Estimates of GDP, NDP, NNP and Per Capita Income 1999-2000 to 2004-2005 (at constant prices) (old series at 1993-94 prices and new series at 1999-2000 prices) (Rs. crore) Year GDP at factor cost (Rs. Crore) NDP at factor cost (Rs. Crore) NNP at factor cost (Rs. Crore) Per Capita Income (Rs.) 1993-94 Series New Series 1993-94 Series New Series 1993-94 Series New Series 1993-94 Series New Series 1999-00 1148367 1792292 1019296 1605643 1008114 1590212 10071 15886 2000-01 1198592 1870388 1062492 1675633 1050338 1653088 10308 16223 2001-02 1267945 1978056 1125480 1775952 1115171 1755281 10754 16910 2003-04 1430548 2226041 1274074 2004703 1266005 1986858 11799 18517
    • Per Capita Income
      • National Income per head of population.
      • NY
      • PCY = -----------------
      • Population
    • Some Basic Concepts
    • Domestic Territory of a Country
      • Includes:
      • Territory lying within the political frontiers, including territorial waters of the country
      • Ships & aircrafts operated by residents of te country between 2 countries
      • Fishing vessels, oils & natural gas rig, floating platforms operated by residents of the country in international waters or engaged in extraction in area in which the country has exclusive rights of exploitation.
      • Embassies, consulates & military establishments of the country located abroad.
    • Normal Residents of a Country
      • Resident => a person who “ordinarily” resides in a country and whose centre of interest lies in that country.
      • Normal residents => covers both individuals and institutions. It includes nationals and non-nationals residing in a country.
    • Exceptions
      • International organisations like World Health Organisation, World Bank, IMF, ILO
      • Resident HHs & individuals cover all individuals living within the domestic territory except the following:
          • Foreign visitors for recreation, holidays, medical treatment, study tours, conferences, etc.
          • Crew member of foreign vessels, commercial travelers & seasonal workers.
          • Officials, diplomats & members of armed forces of a foreign country
          • Employees of international organisations who are not citizen of the country in which the office is located
          • Foreigners who are the employees of non-resident enterprises and who have come to the country for installing machines or equipment purchased from their employers.
    • Stock variables
      • Measures of economic activity at a point in time .
    • Examples of Stock Var.
      • Wealth (an accumulation of savings over time)  
      • Debt (an accumulation of borrowing over time)
      • Capital Stock (Factories, Machinery, Inventory, Infrastructure)
      • The Money Supply
      • Any Balance Sheet measures (Assets, Liabilities, Owner's Equity)
    • Flow Variables
      • Economic activity measured per unit of time .
    • Examples of Flow Var.
      • Income (Household, Per-Capita, National)
      • Budget Deficits
      • Investment Expenditure
      • Consumption Expenditure
      • Any Income Statement measures (Sales Revenue, Gross Profit, Expenses)
    • Closed Economy
      • A country which has no economic relations with other countries.
      • All other countries (except the one under consideration) are grouped into one category “rest of the world”.
    • Open Economy
      • A country having economic relations with the rest of the world.
          • Selling goods and services to foreigners (exports)
          • Purchasing goods and services from the rest of the world (imports)
          • Selling shares, bonds, debentures to foreigners
          • Lending and borrowing
          • Sending gifts to foreigners and receiving gifts from them
          • Normal resident going to foreign countries to work there, and foreign residents coming and working in the domestic territory of the country.
    • Net Factor Income from Abroad
      • Income attributable to factor services rendered by the normal residents of a country to the rest of the world less factor services rendered to them by the rest of the world.
      • Includes:
      • Net compensation of employees
      • Net income from property and entrepreneurship (interest, rent, profits and dividends); and
      • Net retained earnings of resident companies abroad.
    • Basic Economic Activities
      • Production
      • Consumption
      • Capital Accumulation
    • Production
      • Any activity which produces a commodity or increases the value of a commodity already produced.
    • Consumption
      • Using up of goods and services to satisfy human wants.
      • Destruction of utility.
    • Capital Formation
      • Surplus of production over consumption in an accounting year.
      • That which adds to further production.
      • Construction of New Assets (buildings, roads, bridges, transport equipment).
      • Production of machine and equipment
      • Increase in the stock of raw materials, semi-finished goods and finished goods during an accounting year.
    • Income Concepts
    • Net Domestic Product at Factor Cost
      • Also called Domestic Factor Income (DFY)
      • NDP (FC) is defined as the net value added by all the producers within the domestic territory of the country.
    • NDP (FC) = Wages + Rent + Interest + Profit + Mixed Income of the self-employed NDP (FC) = compensation of employees + operating surplus + mixed income of self-employed
    • Gross Domestic Product
      • GDP (FC) = NDP (FC) + D
      • Where D = depreciation
      • GDP (MP) = GDP (FC) + N.I.T
      • Where N.I.T = net indirect taxes
              • = I.T. – S
              • I.T = Indirect Taxes
              • S = Subsidies
    • Gross National Product
      • GNP (MP) = GDP (MP) + NFA
      • Where NFA = Net Factor Income from abroad
    • Important features of GNP
      • Expressed in terms of money.
      • Includes only those items which are produced during the time for which GNP stands (flow concept).
      • Accounts for only those goods traded through the official market.
      • Intermediate goods not included.
      • Excludes non-productive transactions and second-hand sales.
    • National Income
      • Factor income accruing to the normal resident of the country.
      • NNP (MP) = GNP (MP) – D
      • NNP (FC) = NNP (MP) – NIT
      • = W + R + I + P + Mix Y + NFA
      • = National Income (NY)
    •   NFA (6)     NIT (5) 5 6     D (4) 4 4 5 6 Wages (1) 1 1 1 1 1 R+I+P (2) 2 2 2 2 2 Mixed Income (3) 3 3 3 3 3 NDP (FC) GDP (FC) GDP (MP) GNP (MP) NNP (MP) NNP (FC)   NY
    • Important relations
      • Gross – Net = Depreciation
      • M.P. – FC = N.I.T
      • National – Domestic = NFA
    • Quick Review
      • NDP (FC)
      • W + I + R + P + Mix Y
      • GDP (MP)
      • NDP(FC) + D + NIT (=IT - S)
      • Widest concept of NY?
      • GNP (MP)
      • = NDP(FC) + D + NIT (=IT - S) + NFA
      • = GDP (MP) + NFA
      • National Income (NY)
      • NNP (FC) = NDP (FC) + NFA
      • = GNP (MP) – D – NIT
    • Other Income Concepts
    • Sectors of the Economy
      • Economy = Government + Private
      • Government = central, state & local
      • Private = households (HH).
      • Firms = government + HH
    • Private Income
      • Private Income = NDP (FC)
      • – Income from property & entrepreneurship accruing to government
      • – savings of non-departmental enterprises
      • + National Debt Interest
      • + NFA
      • + current transfers from government
      • + other transactions from rest of the world.
    • Personal Income
      • Current Income of persons or HHs from all sources.
      • Personal Income = Private Income
      • – savings of private corporate sector net of retained earnings of foreign sector
      • – Corporation Tax
    • Personal Disposable Income
      • Income at the disposal of the HHs from all sources.
      • PDY = Personal Income
      • – Direct Taxes paid by HHs
      • – miscellaneous receipts of government.
    • Methods to Measure National Income
    • Circular Flow of National Income
      • Production
      Income Expenditure
    • Three phases of the circular flow
      • Production :
      • sum of net value added by all the producing enterprises (including the government)
      • Distribution :
      • total income generated in the production of goods and services
      • Disposition :
      • sum of expenditures of the three spending units (general government, consumer households and producing enterprises).
    • Product (Value Added) Method
      • Measures the contribution of each producing enterprise in the domestic territory of the country.
    • An Example
      • Value of Output = Volume of physical output x Market Price
      • Value of intermediate consumption = price paid by the enterprise.
    • Include:
      • Own account production of fixed assets by government, enterprises & households
      • Production for self consumption
      • Imputed rent of owner-occupied houses
      • Not included :
      • Sale of second-hand goods
      • Brokerage and commission earned by dealers of second hand goods are a part of current production.
      • GDP (MP) =
      • NVA by Primary sector
      • + NVA by Secondary sector
      • + NVA by Tertiary sector
      • NDP (FC) = Value of Output
      • – Value of intermediate consumption
      • – D - NIT
    • Income Method
      • For every rupee’s worth of goods & services produced, a rupee’s worth of income is generated.
      • Income Method should give the same value of National Income as Value Added Method.
      • NDP (FC) = Wages + Rent + Interest + Profits + Mixed Income of self-employed
      • National Income = NDP (FC) + NFA
    • Include:
      • Value of production for self consumption.
      • Imputed rent of owner occupied houses.
    • Exclude:
      • All transfer payments
      • Illegal incomes
      • Windfall gains (lotteries)
      • Death duties, gift tax, wealth tax
      • Corporation tax
      • Income tax
    • Expenditure Method
      • National Income is the sum of all final expenditures, including :
          • Expenditure on private consumption (C)
          • Gross investment (both private & public) (I)
          • Expenditure on government (federal, state & local) (G)
          • Foreigner’s expenditure on our exports (X) net of our expenditure on imports from abroad (M).
      • GDP (MP) = C + G + I + X – M
      • GDP (MP) = PFCE + GFCE + Gross Fixed Capital Formation + Change in stocks + Net Exports of goods & services.
    • Find out the Gross Value Added at Market Price:
      • A sells intermediate goods worth Rs.400 to B. B sells the manufactured goods worth Rs.400 to C and worth Rs.200 to D. C sells his goods to D for Rs.500. D sells the final goods to the consumer household for Rs.850.
      • Happy Counting!!!