2. National Income
“Sum total of factor income earned by
normal residents of a country during a
period of one year”
3. Economic Territory
“Economic territory is the geographical
territory administrated by a government
within where persons, goods and capital
circulate freely”
4. Normal Resident
“A resident whether a person is one whose
center of economic interest lies in the
economic territory of the country ”
5. GDP
“It is the market value of all final goods and
services produced within the domestic
territory of a country during a period of one
year”
6. Factor Income
“Factor income refers to income which is
received as reward for the factor services in
the process of production ”
Example : rent , wages , interest, profit etc.
7. Transfer Income
“Transfer income refers to the income
which is not received s reward the other
services. No service is rendered for transfer
income ”
Example : gifts in cash , scholarships ,
unemployment allowances , pension etc.
8. Net Factor Income from
Abroad(NFIA)
It is the difference between factor income earned from abroad
by normal resident of a country and the factor income
earned by non residents(foreigners ) from that country.
NFIA = Income from Abroad - Income to Abroad
9. Example
1. Domestic product of country is Rs. 1050 crores and NFIA is
Rs. 250. Find out National Product
Solution:
Domestic product = Rs.1050
NFIA = Rs.250
National product = Domestic product + NFIA
National product = 1050 + 250
National product = 1300 crores.
10. Example
2. National product of country is Rs.750 crores , NFIA is Rs.20 crores and
income to abroad is Rs. 40 crores. Find out income from abroad and domestic
product
Solution: National product = Rs.750
NFIA = Rs.20
Income to abroad = Rs.40
NFIA = Income from abroad - Income to abroad
20 = Income from abroad - 40
Income from abroad = 20 + 40
Income from abroad = 60
Domestic product = National product - NFIA
Domestic product = 750 - 20
Domestic product = 730
11. Example
3. Domestic product is Rs. 1000 crores, National product is
Rs.970 crores and income to abroad is Rs.40 crores. Find out
income from abroad.
Solution: Domestic product= Rs.1000
National product = Rs.970
Income to abroad = Rs.40
NFIA = National product - Domestic Product
NFIA = 970 - 1000
NFIA= -30
NFIA = Income from abroad - Income to abroad
- 30 = Income from abroad - 40
Income from abroad =-30 + 40
Income from abroad = 10
12. Depreciation (D)
(Consumption of Fixed Capital-CFC or
Capital Consumption Allowance –CCA or
Replacement Cost -RC)
“Depreciation refers to loss or fall in the value of
fixed assets on account of normal wear and tear
change in technology, accidental damages etc. in the
process of production”
14. Investment (I)
(Capital formation)
“Investment means addition to the stock of capital of
the economy”
Example :- addition or creation of physical assets,
addition to inventories of goods. etc
15. Investment has two types
Gross Investment(GI)
it is the total addition to the capital stock of the
economy which includes depreciation
Net Investment (NI)
Net investment is the actual addition to the capital
stock of the economy which is derived by deducting
depreciation form gross investment
17. Net indirect Taxes (NIT)
“Net indirect tax is the difference between indirect
taxes and subsidies”
Indirect Taxes(IT):
Taxes which are imposed by the government on the
production and sale of commodities are called
indirect taxes.
Example- sales , excise , custom duty etc.
18. Subsidies
These are cash grants given by the government to the
enterprises for production of certain commodities to promote
exports of goods of to sell goods are prices lower then the
market price or to encourage firm to set their production unit
in the backward area.
20. Factor Cost (FC)
“Factor cost refers to all factor payments made by the
firm to the factors of production for rendering their
productive services in the process of production .”
Example :- rent , wages , interest and profit
FC =MP - NIT
21. Market Price (MP)
“Market price is the price at which the product is sold
and purchased in the market.”
MP = FC + NIT
