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National Income & Related Concepts
National Income <ul><li>National income is the money value of all the final goods and services produced by a country durin...
National Income at current prices <ul><li>Goods and services are valued at the prices prevailing in the markets in that pa...
Estimates of GDP, NDP, NNP and Per Capita Income 1999-2000 to 2004-2005 (at current prices) (Rs. crore) Year GDP at factor...
National Income at constant prices <ul><li>Goods and services are valued at the price prevailing in the base year .  </li>...
Estimates of GDP, NDP, NNP and Per Capita Income 1999-2000 to 2004-2005 (at constant prices) (old series at 1993-94 prices...
Per Capita Income <ul><li>National Income per head of population. </li></ul><ul><li>  NY </li></ul><ul><li>  PCY = -------...
Some Basic Concepts
Domestic Territory of a Country <ul><li>Includes: </li></ul><ul><li>Territory lying within the political frontiers, includ...
Normal Residents of a Country <ul><li>Resident => a person who “ordinarily” resides in a country and whose centre of inter...
Exceptions  <ul><li>International organisations like World Health Organisation, World Bank, IMF, ILO </li></ul><ul><li>Res...
Stock variables <ul><li>Measures of economic activity at a point in time . </li></ul>
Examples of Stock Var. <ul><li>Wealth (an accumulation of savings over time)    </li></ul><ul><li>Debt (an accumulation of...
Flow Variables <ul><li>Economic activity measured per unit of time  . </li></ul>
Examples of Flow Var. <ul><li>Income (Household, Per-Capita, National)  </li></ul><ul><li>Budget Deficits  </li></ul><ul><...
Closed Economy <ul><li>A country which has no economic relations with other countries. </li></ul><ul><li>All other countri...
Open Economy <ul><li>A country having economic relations with the rest of the world. </li></ul><ul><ul><ul><li>Selling goo...
Net Factor Income from Abroad <ul><li>Income attributable to factor services rendered by the normal residents of a country...
Basic Economic Activities
<ul><li>Production </li></ul><ul><li>Consumption </li></ul><ul><li>Capital Accumulation </li></ul>
Production <ul><li>Any activity which produces a commodity or increases the value of a commodity already produced. </li></ul>
Consumption <ul><li>Using up of goods and services to satisfy human wants. </li></ul><ul><li>Destruction of utility. </li>...
Capital Formation <ul><li>Surplus of production over consumption in an accounting year. </li></ul><ul><li>That which adds ...
<ul><li>Construction of New Assets (buildings, roads, bridges, transport equipment). </li></ul><ul><li>Production of machi...
Income Concepts
Net Domestic Product at Factor Cost <ul><li>Also called Domestic Factor Income (DFY) </li></ul><ul><li>NDP (FC) is defined...
NDP (FC) = Wages + Rent + Interest + Profit + Mixed Income of the self-employed NDP (FC) = compensation of employees + ope...
Gross Domestic Product  <ul><li>GDP (FC) = NDP (FC) + D </li></ul><ul><li>Where D = depreciation </li></ul>
<ul><li>GDP (MP) = GDP (FC) + N.I.T </li></ul><ul><li>Where N.I.T = net indirect taxes </li></ul><ul><ul><ul><ul><ul><li>=...
Gross National Product <ul><li>GNP (MP) = GDP (MP) + NFA </li></ul><ul><li>Where NFA = Net Factor Income from abroad </li>...
Important features of GNP <ul><li>Expressed in terms of money. </li></ul><ul><li>Includes only those items which are produ...
National Income <ul><li>Factor income accruing to the normal resident of the country. </li></ul><ul><li>NNP (MP) = GNP (MP...
  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   (F...
Important relations <ul><li>Gross – Net = Depreciation </li></ul><ul><li>M.P. – FC = N.I.T </li></ul><ul><li>National – Do...
Quick Review <ul><li>NDP (FC) </li></ul><ul><li>W + I + R + P + Mix Y </li></ul><ul><li>GDP (MP) </li></ul><ul><li>NDP(FC)...
Other Income Concepts
Sectors of the Economy <ul><li>Economy = Government + Private </li></ul><ul><li>Government = central, state & local </li><...
Private Income <ul><li>Private Income = NDP (FC)  </li></ul><ul><li>–  Income from property & entrepreneurship accruing to...
Personal Income <ul><li>Current Income of persons or HHs from all sources. </li></ul><ul><li>Personal Income = Private Inc...
Personal Disposable Income <ul><li>Income at the disposal of the HHs from all sources. </li></ul><ul><li>PDY = Personal In...
Methods to Measure National Income
Circular Flow of National Income <ul><li>  Production </li></ul>Income Expenditure
Three phases of the circular flow <ul><li>Production : </li></ul><ul><li>sum of net value added by all the producing enter...
Product (Value Added) Method <ul><li>Measures the contribution of each producing enterprise in the domestic territory of t...
An Example
<ul><li>Value of Output = Volume of physical output x Market Price </li></ul><ul><li>Value of intermediate consumption = p...
Include: <ul><li>Own account production of fixed assets by government, enterprises & households </li></ul><ul><li>Producti...
<ul><li>GDP (MP) =  </li></ul><ul><li>  NVA by Primary sector  </li></ul><ul><li>+ NVA by Secondary sector  </li></ul><ul>...
Income Method <ul><li>For every rupee’s worth of goods & services produced, a rupee’s worth of income is generated. </li><...
<ul><li>NDP (FC) = Wages + Rent + Interest + Profits + Mixed Income of self-employed </li></ul><ul><li>National Income = N...
Include: <ul><li>Value of production for self consumption. </li></ul><ul><li>Imputed rent of owner occupied houses. </li><...
Exclude: <ul><li>All transfer payments </li></ul><ul><li>Illegal incomes </li></ul><ul><li>Windfall gains (lotteries) </li...
Expenditure Method <ul><li>National Income is the sum of all final expenditures,  including : </li></ul><ul><ul><ul><li>Ex...
<ul><li>GDP (MP) = C + G + I + X – M </li></ul><ul><li>GDP (MP) = PFCE + GFCE + Gross Fixed Capital Formation + Change in ...
Find out the Gross Value Added at Market Price: <ul><li>A sells intermediate goods worth Rs.400 to B. B sells the manufact...
<ul><li>Happy Counting!!! </li></ul>
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National income

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National income

  1. 1. National Income & Related Concepts
  2. 2. National Income <ul><li>National income is the money value of all the final goods and services produced by a country during one year. </li></ul>
  3. 3. National Income at current prices <ul><li>Goods and services are valued at the prices prevailing in the markets in that particular year. </li></ul><ul><li>E.g. National Income of 2009-10: goods and services are valued at prices prevailing in the year 2009-10. </li></ul>
  4. 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. 5. National Income at constant prices <ul><li>Goods and services are valued at the price prevailing in the base year . </li></ul><ul><li>E.g. National Income of year 2009-10 at 1999-2000 prices (prices of goods and services prevailing in year 1999-2000). </li></ul>
  6. 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. 7. Per Capita Income <ul><li>National Income per head of population. </li></ul><ul><li> NY </li></ul><ul><li> PCY = ----------------- </li></ul><ul><li> Population </li></ul>
  8. 8. Some Basic Concepts
  9. 9. Domestic Territory of a Country <ul><li>Includes: </li></ul><ul><li>Territory lying within the political frontiers, including territorial waters of the country </li></ul><ul><li>Ships & aircrafts operated by residents of te country between 2 countries </li></ul><ul><li>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. </li></ul><ul><li>Embassies, consulates & military establishments of the country located abroad. </li></ul>
  10. 10. Normal Residents of a Country <ul><li>Resident => a person who “ordinarily” resides in a country and whose centre of interest lies in that country. </li></ul><ul><li>Normal residents => covers both individuals and institutions. It includes nationals and non-nationals residing in a country. </li></ul>
  11. 11. Exceptions <ul><li>International organisations like World Health Organisation, World Bank, IMF, ILO </li></ul><ul><li>Resident HHs & individuals cover all individuals living within the domestic territory except the following: </li></ul><ul><ul><ul><li>Foreign visitors for recreation, holidays, medical treatment, study tours, conferences, etc. </li></ul></ul></ul><ul><ul><ul><li>Crew member of foreign vessels, commercial travelers & seasonal workers. </li></ul></ul></ul><ul><ul><ul><li>Officials, diplomats & members of armed forces of a foreign country </li></ul></ul></ul><ul><ul><ul><li>Employees of international organisations who are not citizen of the country in which the office is located </li></ul></ul></ul><ul><ul><ul><li>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. </li></ul></ul></ul>
  12. 12. Stock variables <ul><li>Measures of economic activity at a point in time . </li></ul>
  13. 13. Examples of Stock Var. <ul><li>Wealth (an accumulation of savings over time)   </li></ul><ul><li>Debt (an accumulation of borrowing over time) </li></ul><ul><li>Capital Stock (Factories, Machinery, Inventory, Infrastructure) </li></ul><ul><li>The Money Supply </li></ul><ul><li>Any Balance Sheet measures (Assets, Liabilities, Owner's Equity) </li></ul>
  14. 14. Flow Variables <ul><li>Economic activity measured per unit of time . </li></ul>
  15. 15. Examples of Flow Var. <ul><li>Income (Household, Per-Capita, National) </li></ul><ul><li>Budget Deficits </li></ul><ul><li>Investment Expenditure </li></ul><ul><li>Consumption Expenditure </li></ul><ul><li>Any Income Statement measures (Sales Revenue, Gross Profit, Expenses) </li></ul>
  16. 16. Closed Economy <ul><li>A country which has no economic relations with other countries. </li></ul><ul><li>All other countries (except the one under consideration) are grouped into one category “rest of the world”. </li></ul>
  17. 17. Open Economy <ul><li>A country having economic relations with the rest of the world. </li></ul><ul><ul><ul><li>Selling goods and services to foreigners (exports) </li></ul></ul></ul><ul><ul><ul><li>Purchasing goods and services from the rest of the world (imports) </li></ul></ul></ul><ul><ul><ul><li>Selling shares, bonds, debentures to foreigners </li></ul></ul></ul><ul><ul><ul><li>Lending and borrowing </li></ul></ul></ul><ul><ul><ul><li>Sending gifts to foreigners and receiving gifts from them </li></ul></ul></ul><ul><ul><ul><li>Normal resident going to foreign countries to work there, and foreign residents coming and working in the domestic territory of the country. </li></ul></ul></ul>
  18. 18. Net Factor Income from Abroad <ul><li>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. </li></ul><ul><li>Includes: </li></ul><ul><li>Net compensation of employees </li></ul><ul><li>Net income from property and entrepreneurship (interest, rent, profits and dividends); and </li></ul><ul><li>Net retained earnings of resident companies abroad. </li></ul>
  19. 19. Basic Economic Activities
  20. 20. <ul><li>Production </li></ul><ul><li>Consumption </li></ul><ul><li>Capital Accumulation </li></ul>
  21. 21. Production <ul><li>Any activity which produces a commodity or increases the value of a commodity already produced. </li></ul>
  22. 22. Consumption <ul><li>Using up of goods and services to satisfy human wants. </li></ul><ul><li>Destruction of utility. </li></ul>
  23. 23. Capital Formation <ul><li>Surplus of production over consumption in an accounting year. </li></ul><ul><li>That which adds to further production. </li></ul>
  24. 24. <ul><li>Construction of New Assets (buildings, roads, bridges, transport equipment). </li></ul><ul><li>Production of machine and equipment </li></ul><ul><li>Increase in the stock of raw materials, semi-finished goods and finished goods during an accounting year. </li></ul>
  25. 25. Income Concepts
  26. 26. Net Domestic Product at Factor Cost <ul><li>Also called Domestic Factor Income (DFY) </li></ul><ul><li>NDP (FC) is defined as the net value added by all the producers within the domestic territory of the country. </li></ul>
  27. 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. 28. Gross Domestic Product <ul><li>GDP (FC) = NDP (FC) + D </li></ul><ul><li>Where D = depreciation </li></ul>
  29. 29. <ul><li>GDP (MP) = GDP (FC) + N.I.T </li></ul><ul><li>Where N.I.T = net indirect taxes </li></ul><ul><ul><ul><ul><ul><li>= I.T. – S </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>I.T = Indirect Taxes </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li> S = Subsidies </li></ul></ul></ul></ul></ul>
  30. 30. Gross National Product <ul><li>GNP (MP) = GDP (MP) + NFA </li></ul><ul><li>Where NFA = Net Factor Income from abroad </li></ul>
  31. 31. Important features of GNP <ul><li>Expressed in terms of money. </li></ul><ul><li>Includes only those items which are produced during the time for which GNP stands (flow concept). </li></ul><ul><li>Accounts for only those goods traded through the official market. </li></ul><ul><li>Intermediate goods not included. </li></ul><ul><li>Excludes non-productive transactions and second-hand sales. </li></ul>
  32. 32. National Income <ul><li>Factor income accruing to the normal resident of the country. </li></ul><ul><li>NNP (MP) = GNP (MP) – D </li></ul><ul><li>NNP (FC) = NNP (MP) – NIT </li></ul><ul><li> = W + R + I + P + Mix Y + NFA </li></ul><ul><li> = National Income (NY) </li></ul>
  33. 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. 34. Important relations <ul><li>Gross – Net = Depreciation </li></ul><ul><li>M.P. – FC = N.I.T </li></ul><ul><li>National – Domestic = NFA </li></ul>
  35. 35. Quick Review <ul><li>NDP (FC) </li></ul><ul><li>W + I + R + P + Mix Y </li></ul><ul><li>GDP (MP) </li></ul><ul><li>NDP(FC) + D + NIT (=IT - S) </li></ul><ul><li>Widest concept of NY? </li></ul><ul><li>GNP (MP) </li></ul><ul><li>= NDP(FC) + D + NIT (=IT - S) + NFA </li></ul><ul><li>= GDP (MP) + NFA </li></ul><ul><li>National Income (NY) </li></ul><ul><li>NNP (FC) = NDP (FC) + NFA </li></ul><ul><li> = GNP (MP) – D – NIT </li></ul>
  36. 36. Other Income Concepts
  37. 37. Sectors of the Economy <ul><li>Economy = Government + Private </li></ul><ul><li>Government = central, state & local </li></ul><ul><li>Private = households (HH). </li></ul><ul><li>Firms = government + HH </li></ul>
  38. 38. Private Income <ul><li>Private Income = NDP (FC) </li></ul><ul><li>– Income from property & entrepreneurship accruing to government </li></ul><ul><li>– savings of non-departmental enterprises </li></ul><ul><li>+ National Debt Interest </li></ul><ul><li>+ NFA </li></ul><ul><li>+ current transfers from government </li></ul><ul><li>+ other transactions from rest of the world. </li></ul>
  39. 39. Personal Income <ul><li>Current Income of persons or HHs from all sources. </li></ul><ul><li>Personal Income = Private Income </li></ul><ul><li>– savings of private corporate sector net of retained earnings of foreign sector </li></ul><ul><li>– Corporation Tax </li></ul>
  40. 40. Personal Disposable Income <ul><li>Income at the disposal of the HHs from all sources. </li></ul><ul><li>PDY = Personal Income </li></ul><ul><li>– Direct Taxes paid by HHs </li></ul><ul><li>– miscellaneous receipts of government. </li></ul>
  41. 41. Methods to Measure National Income
  42. 42. Circular Flow of National Income <ul><li> Production </li></ul>Income Expenditure
  43. 43. Three phases of the circular flow <ul><li>Production : </li></ul><ul><li>sum of net value added by all the producing enterprises (including the government) </li></ul><ul><li>Distribution : </li></ul><ul><li>total income generated in the production of goods and services </li></ul><ul><li>Disposition : </li></ul><ul><li>sum of expenditures of the three spending units (general government, consumer households and producing enterprises). </li></ul>
  44. 44. Product (Value Added) Method <ul><li>Measures the contribution of each producing enterprise in the domestic territory of the country. </li></ul>
  45. 45. An Example
  46. 46. <ul><li>Value of Output = Volume of physical output x Market Price </li></ul><ul><li>Value of intermediate consumption = price paid by the enterprise. </li></ul>
  47. 47. Include: <ul><li>Own account production of fixed assets by government, enterprises & households </li></ul><ul><li>Production for self consumption </li></ul><ul><li>Imputed rent of owner-occupied houses </li></ul><ul><li>Not included : </li></ul><ul><li>Sale of second-hand goods </li></ul><ul><li>Brokerage and commission earned by dealers of second hand goods are a part of current production. </li></ul>
  48. 48. <ul><li>GDP (MP) = </li></ul><ul><li> NVA by Primary sector </li></ul><ul><li>+ NVA by Secondary sector </li></ul><ul><li>+ NVA by Tertiary sector </li></ul><ul><li>NDP (FC) = Value of Output </li></ul><ul><li>– Value of intermediate consumption </li></ul><ul><li>– D - NIT </li></ul>
  49. 49. Income Method <ul><li>For every rupee’s worth of goods & services produced, a rupee’s worth of income is generated. </li></ul><ul><li>Income Method should give the same value of National Income as Value Added Method. </li></ul>
  50. 50. <ul><li>NDP (FC) = Wages + Rent + Interest + Profits + Mixed Income of self-employed </li></ul><ul><li>National Income = NDP (FC) + NFA </li></ul>
  51. 51. Include: <ul><li>Value of production for self consumption. </li></ul><ul><li>Imputed rent of owner occupied houses. </li></ul>
  52. 52. Exclude: <ul><li>All transfer payments </li></ul><ul><li>Illegal incomes </li></ul><ul><li>Windfall gains (lotteries) </li></ul><ul><li>Death duties, gift tax, wealth tax </li></ul><ul><li>Corporation tax </li></ul><ul><li>Income tax </li></ul>
  53. 53. Expenditure Method <ul><li>National Income is the sum of all final expenditures, including : </li></ul><ul><ul><ul><li>Expenditure on private consumption (C) </li></ul></ul></ul><ul><ul><ul><li>Gross investment (both private & public) (I) </li></ul></ul></ul><ul><ul><ul><li>Expenditure on government (federal, state & local) (G) </li></ul></ul></ul><ul><ul><ul><li>Foreigner’s expenditure on our exports (X) net of our expenditure on imports from abroad (M). </li></ul></ul></ul>
  54. 54. <ul><li>GDP (MP) = C + G + I + X – M </li></ul><ul><li>GDP (MP) = PFCE + GFCE + Gross Fixed Capital Formation + Change in stocks + Net Exports of goods & services. </li></ul>
  55. 55. Find out the Gross Value Added at Market Price: <ul><li>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. </li></ul>
  56. 56. <ul><li>Happy Counting!!! </li></ul>

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