National Income GDP GNP GDP Vs GNP Problems of Estimating or Calculating National Income Methods or Approaches to calculate National Income

1. NATIONAL INCOME
PRESENTATION BY : HARISH M
GUIDED BY : MERVIN FELIX CALEB

2. NATIONAL INCOME

3. History of national income
The first official attempt was made by National Income Committee headed by
Professor PC Mahala Nobis in 1949.
Professor Rao is the father of national income accounting in India.
Dadabhai Naoroji
Dadabhai Naoroji was the first Indian to estimate the national
income of the country.

4. INTRODUCTION
• National income means the value of goods and services produced
by a country during a financial year.
• National income is an uncertain term and is often used
interchangeably with the national dividend, national output, and
national expenditure.
• It includes payments made to all resources either in the form
of wages, interest, rent, and profits.

5. 1.Gross domestic product (GDP)is the
standard measure of the value added created
through the production of goods and services
in a country during a certain period.
Accordingly, GDP is defined by the following formula:
GDP = Consumption + Investment + Government
Spending + Net Exports

6. There are three different ways to measure GDP:
1. The Product Method:
In this method, the value of all goods and services produced in different industries during the year is added up.
This is also known as the value added method to GDP or GDP at factor cost by industry of origin. The following
items are included in India in this: agriculture and allied services; mining; manufacturing, construction,
electricity, gas and water supply.
2. The Income Method:
The people of a country who produce GDP during a year receive incomes from their work. Thus GDP by
income method is the sum of all factor incomes: Wages and Salaries (compensation of employees) + Rent +
Interest + Profit.
3. Expenditure Method:
This method focuses on goods and services produced within the country during one year.

7. 2.Gross National Product (GNP) is the
total value of all finished goods and
services produced by a country’s citizens in
a given financial year, irrespective of their
location. GNP also measures the output
generated by a country’s businesses
located domestically or abroad.
GNP = C + I + G + X + Z
Where C is Consumption, I is investment, G is government, X is net exports, and Z is
net income earned by domestic residents from overseas investments minus net
income earned by foreign residents from domestic investments.

8. Three Approaches to GNP:
1. Income Method to GNP:
The income method to GNP consists of the remuneration paid in terms of money to the factors of
production annually in a country.
(i) Wages and salaries
(ii) Rents
(iii) Interest
(iv) Dividends
(v) Undistributed corporate profits
(vi) Mixed incomes
(vii) Direct taxes
(viii) Indirect taxes
(ix) Depreciation
(x) Net income earned from abroad

9. 2. Expenditure Method to GNP:
From the expenditure view point, GNP is the sum total of expenditure incurred on goods
and services during one year in a country.
(i) Private consumption expenditure:
It includes all types of expenditure on personal consumption by the individuals of a country.
(ii) Gross domestic private investment:
Under this comes the expenditure incurred by private enterprise on new investment and on
replacement of old capital.
(iii) Net foreign investment:
It means the difference between exports and imports or export surplus. Every
country exports to or imports from certain foreign countries.
(iv) Government expenditure on goods and services:
The expenditure incurred by the government on goods and services is a part of the GNP.
Central, state or local governments spend a lot on their employees, police and army.
3. Value Added Method to GNP:
Another method of measuring GNP is by value added. In calculating GNP, the money value of final goods
and services produced at current prices during a year is taken into account.

10. Difference between GDP and GNP

11. 3.Net domestic product(NDP) accounts
for capital that has been consumed over
the year in the form of housing, vehicle, or
machinery deterioration.
NDP FORMULA: NDP = Gross domestic product (GDP) - Depreciation
4.Net national product (NNP) the
total market value of all
final goods and services produced by
the factors of production of a country or
other polity during a given time period.

12. Personal Income:
Personal income is the total income received by the individuals of a country from all sources before
payment of direct taxes in one year. Personal income is never equal to the national income, because the
former includes the transfer payments whereas they are not included in national income.
Disposable Income:
Disposable income or personal disposable income means the actual income which can be spent on
consumption by individuals and families. The whole of the personal income cannot be spent on
consumption, because it is the income that accrues before direct taxes have actually been paid. Therefore, in
order to obtain disposable income, direct taxes are deducted from personal income.
Per Capita Income:
The average income of the people of a country in a particular year is called Per Capita Income for that
year. This concept also refers to the measurement of income at current prices and at constant prices.

13. Methods of Measuring National Income:
(2) Income Method:
According to this method, the net income payments received by all citizens of a country in a particular year
are added up, i.e., net incomes that accrue to all factors of production by way of net rents, net wages, net
interest and net profits.
(1) Product Method:
According to this method, the total value of final goods and services produced in a country during a year is
calculated at market prices. To find out the GNP, the data of all productive activities, such as agricultural
products, wood received from forests, minerals received from mines, commodities produced by industries.
(3) Expenditure Method:
According to this method, the total expenditure incurred by the society in a particular year is added
together and includes personal consumption expenditure, net domestic investment, government
expenditure on goods and services, and net foreign investment.
(4) Value Added Method:
Another method of measuring national income is the value added by industries. The difference between
the value of material outputs and inputs at each stage of production is the value added.

14. Importance of National Income Analysis:
1.Economy
2.National Policies
3.Economic Planning
4.Economic Models
5.Research
6.Per Capita Income
7.Distribution of Income

15. Difficulties in measuring national income
1.Prevalence of Non-Monetized Transactions
2. Illiteracy
3.Black money
4.Occupational Specialization is Still Incomplete and
Lacking
5.Double counting
6.Calculation of depreciation
7.Expenditure method

17. REFERENCES
• https://www.yourarticlelibrary.com/notes/national-income-definition-concepts-and-methods-of-
measuring-national-income/30801
• https://www.toppr.com/guides/fundamentals-of-economics-and-management/national-
income/concept-of-national-income/
• https://www.economicsdiscussion.net/national-income/difficulties/8-major-difficulties-in-the-
measurement-of-national-income/13891
• https://www.economicsdiscussion.net/national-income/studies/top-11-key-benefits-of-national-
income-
studies/7621#:~:text=National%20income%20statistics%20enable%20us,their%20contribution%20tow
ards%20national%20income.&text=Thus%2C%20these%20data%20provide%20a,the%20structure%20
of%20the%20economy.