it deals basic concepts of national income

1. N.DHINAKARAN
ASSISTANT PROFESSOR OF ECONOMICS
VIVEKANANDA COLLEGE
TIRUVEDAKAM WEST
MADURAI
Course Title : Macro Economics-I
Course Code: : 01CT 51

2. UNIT - II
• National Income: Definition and Concept - Per-capita Income and Disposal
Personal income, Real Income and National Income - Concept of National
Product - GNP and NNP - Methods of Measuring National Income - Difficulties
in the Computation of National Income – Uses of National Income.

3. Meaning of National Income
1.National income of a country can be defined as the total market value of
all final good and services produced in the economy a year.
2. National income is the sum of total of factor incomes earned by normal
residents of a country during the period of an accounting year.
3. The total income of the nation is called “national income”.

4. Concepts of National Income
 Gross Domestic Product
Net Domestic Product
Gross National Product
National Income (NI) or National Income at Factor Cost (NNP FC )
Net National Product at Market Price [NNPMP]
Per-capita Income
Disposal Personal income
Real Income
Personal Income

5. Gross Domestic Product at Market Price [GDPMP]
Gross domestic product at market price is the market value of final goods and
services currently produced within the domestic territory of a country during the
period of an accounting year, inclusive of depreciation.
GDP MP = GNP MP – Net Factor Income From Abroad
( OR)
GDP = C + I + G + (X – M).
Net Domestic Product (NDP)
NDP= GDP MP - Depreciation
Gross National Product (GNP)
GNP MP = GDPMP + Net Factor Income from abroad (OR)
GNP = C+ I +G+(X-M) + (R-P)

6. National Income ( NI) or National Income Factor Cost (NNP FC)
National Income = NNP at MP - Indirect Taxes + Subsidies
Net National Product at Market Price [NNPMP] or National Income at Market Price
NNP MP = NDP MP + Net factor Income from Abroad ( OR)
NNP = GNP – Depreciation.
Per – Capita Income:
The average income of the people of a country in particular year is called Per Capita
Income for that year.
Per Capita Income = National Income
Population

7.  Disposal Personal income
Disposable Income = Personal Income – Direct Taxes
Real Income
National income is the final value of goods and services produced and expressed in
terms of money at current prices. But it does not indicate the real state of the economy.
when national income is expressed in terms of constant prices it is called real income.
Personal Income
Personal Income = National Income – Social Security contribution - Corporate Income
Taxes – Undistributed Corporate Profits + Transfers Payment
Real Income at constant price = National Income at current price ÷ P1 / P0

8. Methods of Measuring National Income
1. Product Method or Value Added Method or Output Method
2. Income Method or Distributed share method
or Factor Payment Method
3. Expenditure Method

9. Product Method or Value Added Method or Output Method
GDP MP - Depreciation - Net Indirect Taxes + NFIA
NDP MP
NDP FC NNP FC
National Income
Primary
Sector
Secondary
Sector
Service Sector

10. Income Method or Distributed share method or Factor Payment Method
Factors Incomes
Compensation of
Employees Operating Surplus
Mixed Income
i) Wages and Salaries Cash
ii) Payment in kind
iii) Employer’s Contribution to
Social Security
iv) Pension on Retirement
Income from property and
entrepreneurship . A) Rent
B) Interest C) Profit
Dividends, Corporate Profit Tax and
Undistributed Profit
The incomes of the self
employed persons using their
own factors of production in
their household

11. Income Method or Distributed share method or Factor Payment Method
NNP FC = Factors Income + NFIA
Compensation of Employees
Operating Surplus
Mixed Income

12. 3. Expenditure Method or Consumption Method or Income Disposal Method
Expenditure Method
Private Final
Consumption
Expenditure Government Final
Consumption
Expenditure
Investment
Expenditure
Fixed
Investment
Inventory Investment
Net Exports

13. Expenditure Method or Consumption Method
GDP MP is converted into NNP FC ( National Income) in terms of the
following equations:
NNP FC = GDP MP – Depreciation – Net indirect taxes + NFIA
NDP MP NDP FC
(Domestic
Income)
NNP FC
(National Income )

14. Difficulties in the Computation of National Income

15. Uses of National Income
• Economic Policy
• Economic Planning
• To compare the standard of living
• Distribution of Grants-in-Aid
• To measure growth rate
 Economy’s Structure
• Public Sector
• To examine the nature of fluctuation in price level
• International Sphere
• Distribution of income

16. THANK YOU