ppt on concepts of national income in engineering economics EEM useful for GTU students

1. ENGINEERING ECONOMICS:
NATIONAL INCOME
SY CE 1
Dhananjaysinh Jhala 170410107027
Faizalhussain Katwala 170410107039

2. CONCEPTS OF NATIONAL INCOME
 Gross domestic product{GDP}
 Gross Domestic Product is the broadest quantitative
measure of a Nation's total economic activity.
 In layman's terms the GDP is the total of everyone's
earning in a certain time period.
 Specifically Gross Domestic Product is the total
market value of all final goods and services currently
produced within the domestic territory of a country in
a year.
 GDP=consumption + government expenditures +
investments + imports – exports.

3. GDP
Four things must be noted regarding this
definition:-
 1. GDP is a monetary measure.
 2. For calculating GDP accurately all goods and
services produced in any given your must be
counted only once.
 3. GDP includes only currently produced goods
and services in a year.
 4. The GDP refers to the goods and services
produced within the domestic Territory of a
country by nationals as well as non nationals

4. GNP
 Gross national product is the value of all finished goods
and services produced in a country in one year by its
nationals.
 GNP includes the income earned by the citizens and
companies abroad but does not include income earned by
foreigners within the country.
 The figures used to access GNP include the
manufacturing of tangible goods and the provision of
services.
 GNP = consumption + government expenditures +
investment + export + foreign production by National
companies - domestic production by foreign companies.

5. NNP
 The net national product in the market value of
all final goods and services after allowing for
depreciation.
 Thus, it is the monetary value of finished goods
and services produced by a country's
citizens(whether overseas or resident) minus
the amount of GNP required to purchase new
goods to maintain existing stock which we call
as depreciation.
 NNP = GNP - depriciation on gross capital
investment ; also called national income at
market price

6. PER CAPITA INCOME
 The per capita income indicate share of
every Indian citizen in the total national
income.
 per capita income(in rupees) = total national
income during a period/ total number of
citizens in a country

7. PERSONAL INCOME
o Personal income refers to all of the income
collectively received by all of the individual or
households in a country.
o Personal income = national income +
corporate income tax - undistributed
corporate profits - social security contribution
+ transfer payment.

8. DISPOSABLE INCOME
 Disposable income is the amount of money
that households have available for spending
and saving after income taxes have been
accounted for.
 Disposable income = personal income -
direct taxes

9. MEASUREMENT OF NATIONAL INCOME
 National income can be measured by three
methods
 1. Output or production method
 2. Income method, and
 3. Expenditure method.

10. OUTPUT OR PRODUCTION METHOD
• The output method or the value added method approaches
the national income from the output side. In this method the
economy is divided into different sectors and then the gross
product is founded by adding up the net values of all the
production that is taken place in these sectors during a
given year.
• Net values of production of all the industry and sectors of
the economy plus the net factor income from abroad will
given the GNP. We can thus get NNP and NNP at market
price - indirect taxes + subsidies gives us the national
income.
• This method is useful because it reveals the contributions
and the importance of all the sectors of the economy.

11. INCOME METHOD
 The income method approaches the national
income from the distribution side.
 The National Income is obtained by summing
up the incomes of all the individuals in the
country and adding rent of the land and the
salaries of employees & also income of the
self employed people.

12. EXPENDITURE METHOD
 Expenditure method arrives at national
income by adding all the expenditure made
on goods and services during the year.
 Here national income is equal to personal
consumption + gross domestic private
investment + government expenditure +
exports - imports.

13. DIFFICULTIES IN MEASURING NATIONAL
INCOME
o There are many difficulties in measuring national income of a country
accurately.
 Some of the problems are:
1. The first problem is the non monetary transaction such as the the
work done by the housewife and the farm output consumed at home.
2. the difficulty arises with regard to the treatment of the government in
national income accounts. The general view point is that when
administrative functions of the government are concerned it should be
treated as giving rise to final consumption of such services by the
community as a whole so that the contribution of the general
government activities is equal to the amount of wages and salaries paid
by the government.
3. the third major problem arises with regard to the treatment of income
arising out of the foreign form in a country new. General view point is
that production and income arising from such an enterprise should be
ascribed to the territory in which it takes place and however the profits
are credited to the parent company

14. CASE STUDY
 Top 10 places GDP wise:
1. United States
2. China
3. Japan
4. Germany
5. UK
6. India
7. France
8. Brazil
9. Italy
10. Canada