Natl income

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Natl income

  1. 1. NATIONAL INCOME
  2. 2. NATIONAL INCOME National income is defined as the value of all final goods and services produced by the normal residents of a country, whether operating within the domestic territory of the country or outside, in a year.
  3. 3. Needs for the study of National Income : 1. To measure the size of the economy and level of country’s economic performance 2. To trace the trend or speed of the economic growth in relation to previous year(s) as well as to other countries 3. To know the structure and composition of the national income in terms of various sectors and the periodical variations in them 4. To make projection about the future development trend of the economy
  4. 4. Needs… 5. To help Govt. to formulate suitable development plans and policies to increase growth rates. 6. To fix various development targets for different sectors of economy on the basis of there performance. 7. To help business firms in forecasting future demand for there products 8. To make international comparison of people’s living standards.
  5. 5. NATIONAL INCOME AGGREGATES • National Income at Current Price Current Prices refer to the prices prevailing in the market during the year for which estimates are made. • National Income at Constant Price Constant Prices refer to the prices prevailing in the market in the base year. National income is measured at both the levels in order to enable a comparison
  6. 6. PER CAPITA INCOME This refers to an individual's share of the national income. It is calculated to understand the economic growth and development of a country. • India has one of the largest economies in the world in terms of its gross domestic product (GDP). • However, India has such a large population that we have has an extremely low per capita GDP. • This figure is determined by dividing a nation's GDP by its population. • As a result of its low per capita GDP, India is considered a developing country
  7. 7. MARKET PRICE V/S FACTOR COST A commodity when goes to the market, indirect taxes are imposed on it. This is the market price. When we deduct the net indirect taxes we get factor cost.
  8. 8. DOMESTIC V/S NATIONAL • A concept which includes the contribution of the domestic sector alone and not of the foreign sector is the domestic concept • When we add the contribution of the foreign sector we get national concept.
  9. 9. CIRCULAR FLOW OF INCOME Supply of Factors of Production (Land, Labour, Capital & Organization) Payment for Commodities Supply of Commodities Payment for Factor Services (Rent, Wages, Interest and Profit) (Goods & Services) (Commodity Price) Firms / Producers Households / Consumers Public Business moneyflow realflow Circular Flow of Income
  10. 10. INCOME EXPENDITUREPRODUCTION
  11. 11. Production method In this method • The total products produced in the economy are calculated for the year and the value is added without double counting • The economy is classified into sectors like Agricultural, industrial, fisheries, forest, direct services and foreign transactions etc • In each sector, we can find the value of final goods and services 12
  12. 12. Production Method • In the international transactions, net foreign income is calculated by subtracting the total imports from the total exports and added to the national income • The results of these sectors, when combined, gives the national income or national product • The census or product method can be expressed through the formula 13
  13. 13. Production Method • O = C + I • Where O stands for output, • C stands for consumption of goods • I stands for investment goods 14
  14. 14. Income Method • According to this method Net incomes of individuals and business houses during a year are added to know the national income • Only those incomes earned and received for producing goods and for rendering services are to be counted • Transfer payments such as old age pensions , widow pensions and unemployment benefits etc should not be counted as these are the incomes received without contributing to the production 15
  15. 15. Income Method • People get incomes in the form of • Rents, wages or salaries, interest and profit • The formula is • Y = C + S • Here Y stands for Total Income • C stands for consumption and S stands for Savings 16
  16. 16. Expenditure Method • One man’s income is another man’s expenditure • Therefore national income can be arrived at by adding the total expenditure of individual and business firms during a year • Expenditure or outlay on final products takes place in three ways 17
  17. 17. Expenditure Method • Expenditure or outlay on final products takes place in three ways • Expenditure by consumers on goods and services • Expenditure by entrepreneurs on capital or investment goods • Expenditure by government on consumption and capital goods 18
  18. 18. Expenditure Method • The formula for this method is • Y = C + I • Here Y stands for total expenditure • C stands for consumption expenditure • I stands for investment expenditure 19
  19. 19. COMPARISON OF THE THREE METHODS The Product method is very suitable for primary sector such as agriculture industries etc. The income method is suitable for service sectors. The Expenditure method is only for the calculation of identical relationship between three methods. It is because we may not get the details of all the expenditure correctly.
  20. 20. Black Money : It has created a parallel economy - unreported economy which is equivalent to the size of officially estimated size of the economy Non-Monetization : In most of the rural economy, considerable portion of transactions occurs informally Growing Service Sector : growing faster than Agricultural and Industrial sectors… value addition in legal consultancy, health service ,financial and business services is not based on accurate reporting. Problems In Calculating National Income
  21. 21. Problems… House Hold Services : It ignores domestic work and house keeping services Social Services : It ignores volunteer and unpaid social services. (Mother Teresa’s social service) Environment Cost : It does not distinguish between environmental-friendly and environmental-hazardous industries … cost of polluting industries is not included in the estimate.
  22. 22. FACTORS AFFECTING NATIONAL INCOME
  23. 23. DIFFICULTIES IN MEASUREMENT OF NATIONAL INCOME Practical • Lack of occupational specialization • Non-monetized sector • Unreported illegal income • Non-availability of reliable statistical data Conceptual • Inclusion of Services • Indentifying intermediate goods • Identifying factor incomes • Valuation of inventory changes • Income of foreign companies
  24. 24. Trends In National Income Growth of National Income in India (in percentage) 7.4% 9%9.2% 8.4% 6.2% 8.3% 4.3%
  25. 25. Trends Of National Income Of India • During the plan periods, national income and per capita income are increasing steadily • But the rise in the per capita income is rather slow due to population growth • Agricultural sector is the most important sector as it is the single largest contributor to the national income • In the recent years, the share of the government sector in national income is steadily increasing indicating the increased efficiency of the public sector 26
  26. 26. Sectoral Composition on National Income 2010f
  27. 27. IS NATIONAL INCOME THE REFLECTION OF HUMAN DEVELOPMENT? 1.) Doesn't measure per capita to determine the most accurate standard of living 2.) Doesn't measure how the goods are distributed to the population 3.) Doesn't include unpaid household work 4.) Doesn't include the barter system, which is still used by many undeveloped countries 5.) Doesn't measure the quality of items produced 6.) GDP counts remedial and defensive expenditures (such as the costs of security, police, pollution clean up, etc.) as positive contributions to commerce.
  28. 28. IMPORTANCE OF NATIONAL INCOME Measures inflationary or deflationary pressure Contribution of various sectors Distribution of national income in an economy Shapes the Budgetary policy of the Government Planning of an Economy

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