National income 1 0709


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National income 1 0709

  1. 1. National Income Accounting
  2. 2. Gross Domestic Product <ul><li>Market value of final goods and services produced in an economy over a given period of time </li></ul>
  3. 3. <ul><li>Market value </li></ul><ul><ul><li>Reduction to common unit of measurement </li></ul></ul><ul><li>Produced </li></ul><ul><ul><li>Refers to output produced and not output sold </li></ul></ul><ul><li>Final </li></ul><ul><ul><li>Include value of intermediate product in the value of final product </li></ul></ul><ul><li>Period of time </li></ul><ul><ul><li>Flow variable </li></ul></ul>
  4. 4. Nominal vs Real GDP <ul><li>Nominal GDP </li></ul><ul><ul><li>GDP at current prices </li></ul></ul><ul><li>Real GDP </li></ul><ul><ul><li>GDP at constant prices </li></ul></ul><ul><ul><li>Eliminate proportion of GDP increase owing to price rise </li></ul></ul><ul><ul><li>Measures the increase in output produced </li></ul></ul>
  5. 5. <ul><li>In an economy, GDP MP is Rs.12,000 crores, the total consumption expenditure on goods and services is Rs.4500 crores, gross investment is Rs.3500 crores and government expenditure is Rs. 3000 crores. If exports are Rs.1500 crores find the imports </li></ul>
  6. 6. <ul><li>Product Approach of Measuring GDP </li></ul><ul><ul><li>Measures economic activity by adding market values of goods and services produced excluding goods and services used in intermediate stages of production </li></ul></ul><ul><ul><li>Called GDP (MP) (GDP at market Prices) </li></ul></ul>
  7. 7. <ul><li>Income Approach </li></ul><ul><ul><li>Measures economic activity by adding all incomes received by producers of output </li></ul></ul><ul><ul><ul><li>Income from wages (w) </li></ul></ul></ul><ul><ul><ul><li>Rent from land (r ) </li></ul></ul></ul><ul><ul><ul><li>Interest (i) </li></ul></ul></ul><ul><ul><ul><li>Profit (p) </li></ul></ul></ul><ul><li>GDP (FC) =w+r+i+p </li></ul>
  8. 8. <ul><li>Expenditure approach </li></ul><ul><ul><li>Measures economic activity by adding the amount spent by all ultimate users of the output </li></ul></ul><ul><ul><li>Also arrives at GDP (MP) </li></ul></ul><ul><li>Y=C+I+G+(X-M) </li></ul><ul><ul><li>X-M is also termed as Net Exports (NX) </li></ul></ul>
  9. 9. Relation between GDP (FC) and GDP (MP) <ul><li>GDP (FC) =GDP (MP) - Net Indirect Taxes </li></ul><ul><ul><li>(Net Indirect Taxes= subsidies – Indirect taxes) </li></ul></ul>
  10. 10. r+w+i+p 30 60 90 Bread r+w+i+p 27 33 60 Dough r+w+i+p 9 24 33 Flour r+w+i+p 24 0 24 Wheat (5) (4) (3) (2) (1) Factor incomes Value added Cost of intermediate products Sales receipts Stage of production
  11. 11. Gross National Product (GNP) <ul><li>GDP refers to output produced in the given geographical area </li></ul><ul><ul><li>Does not concern itself with the origin of the producers. </li></ul></ul><ul><li>GNP focuses on production of goods and services by the factors of production of a country/economy. </li></ul><ul><ul><li>Does not concern itself with geographic area </li></ul></ul>
  12. 12. Relationship between GDP and GNP <ul><li>GNP=GDP + NFIA </li></ul><ul><ul><li>(NFIA= Net Factor Income from Abroad) </li></ul></ul>
  13. 13. Classification of GDP or GNP <ul><li>Value of road constructed by an US firm in Saudi Arabia </li></ul><ul><li>Toyota building a car in its American plant </li></ul><ul><li>An Indian based in Dubai sends his salary earned in Dinars to his home in Kerala </li></ul>
  14. 14. GDP and NDP <ul><li>NDP = GDP – Depreciation </li></ul><ul><li>NNP = GNP – Depreciation </li></ul>
  15. 15. National Income <ul><li>NNP FC is termed as National Income </li></ul><ul><li>NNP FC = NNP MP –Indirect taxes + subsidies </li></ul>
  16. 16. Per capital income <ul><li>Per capita income = NNP FC /population of the country </li></ul>
  17. 17. Personal Income and Disposable Income <ul><li>PI = NI-undistributed profits-corporate taxes-deductions+ transfer payments </li></ul><ul><li>PDI=PI-personal income taxes </li></ul><ul><li>DI=C+ S </li></ul>
  18. 18. <ul><li>National income of a country= Rs. 10,000 cr </li></ul><ul><li>Subsidies = Rs. 500 cr </li></ul><ul><li>Indirect taxes= Rs. 1000 cr </li></ul><ul><li>Retained earnings= Rs. 400 cr </li></ul><ul><li>Corporate taxes= Rs. 750 cr </li></ul><ul><li>Personal taxes = Rs. 800 cr </li></ul><ul><li>Determine PI and PDI </li></ul>
  19. 19. <ul><li>GNPMP = Rs. 8500 cr </li></ul><ul><li>Subsidies= Rs. 650 cr </li></ul><ul><li>Indirect taxes= Rs. 1100 cr </li></ul><ul><li>Depreciation= Rs.750 cr </li></ul><ul><li>Find NI </li></ul>
  20. 20. S,I and National Income Accounts <ul><li>Y= C + I + G + NX </li></ul><ul><li>Y – C = I + G + X - M </li></ul>
  21. 21. <ul><li>I = S p + S g + S row </li></ul><ul><li>Twin deficit problem </li></ul>