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4 national income

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  • 1. National Income & Related Concepts
  • 2. National Income
    • National income is the money value of all the final goods and services produced by a country during one year.
  • 3. 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.
  • 4. 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
  • 5. 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).
  • 6. 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
  • 7. Per Capita Income
    • National Income per head of population.
    • NY
    • PCY = -----------------
    • Population
  • 8. Some Basic Concepts
  • 9. 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.
  • 10. 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.
  • 11. 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.
  • 12. Stock variables
    • Measures of economic activity at a point in time .
  • 13. 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)
  • 14. Flow Variables
    • Economic activity measured per unit of time .
  • 15. Examples of Flow Var.
    • Income (Household, Per-Capita, National)
    • Budget Deficits
    • Investment Expenditure
    • Consumption Expenditure
    • Any Income Statement measures (Sales Revenue, Gross Profit, Expenses)
  • 16. 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”.
  • 17. 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.
  • 18. 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.
  • 19. Basic Economic Activities
  • 20.
    • Production
    • Consumption
    • Capital Accumulation
  • 21. Production
    • Any activity which produces a commodity or increases the value of a commodity already produced.
  • 22. Consumption
    • Using up of goods and services to satisfy human wants.
    • Destruction of utility.
  • 23. Capital Formation
    • Surplus of production over consumption in an accounting year.
    • That which adds to further production.
  • 24.
    • 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.
  • 25. Income Concepts
  • 26. 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.
  • 27. NDP (FC) = Wages + Rent + Interest + Profit + Mixed Income of the self-employed NDP (FC) = compensation of employees + operating surplus + mixed income of self-employed
  • 28. Gross Domestic Product
    • GDP (FC) = NDP (FC) + D
    • Where D = depreciation
  • 29.
    • GDP (MP) = GDP (FC) + N.I.T
    • Where N.I.T = net indirect taxes
            • = I.T. – S
            • I.T = Indirect Taxes
            • S = Subsidies
  • 30. Gross National Product
    • GNP (MP) = GDP (MP) + NFA
    • Where NFA = Net Factor Income from abroad
  • 31. 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.
  • 32. 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)
  • 33.   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
  • 34. Important relations
    • Gross – Net = Depreciation
    • M.P. – FC = N.I.T
    • National – Domestic = NFA
  • 35. 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
  • 36. Other Income Concepts
  • 37. Sectors of the Economy
    • Economy = Government + Private
    • Government = central, state & local
    • Private = households (HH).
    • Firms = government + HH
  • 38. 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.
  • 39. 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
  • 40. 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.
  • 41. Methods to Measure National Income
  • 42. Circular Flow of National Income
    • Production
    Income Expenditure
  • 43. 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).
  • 44. Product (Value Added) Method
    • Measures the contribution of each producing enterprise in the domestic territory of the country.
  • 45. An Example
  • 46.
    • Value of Output = Volume of physical output x Market Price
    • Value of intermediate consumption = price paid by the enterprise.
  • 47. 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.
  • 48.
    • 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
  • 49. 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.
  • 50.
    • NDP (FC) = Wages + Rent + Interest + Profits + Mixed Income of self-employed
    • National Income = NDP (FC) + NFA
  • 51. Include:
    • Value of production for self consumption.
    • Imputed rent of owner occupied houses.
  • 52. Exclude:
    • All transfer payments
    • Illegal incomes
    • Windfall gains (lotteries)
    • Death duties, gift tax, wealth tax
    • Corporation tax
    • Income tax
  • 53. 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).
  • 54.
    • GDP (MP) = C + G + I + X – M
    • GDP (MP) = PFCE + GFCE + Gross Fixed Capital Formation + Change in stocks + Net Exports of goods & services.
  • 55. 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.
  • 56.
    • Happy Counting!!!

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