An overview of National Income: Definition, Concepts and Methods of Measuring National Income

1. NATIONAL INCOME
Mushtaq Ahmad Shah
Assistant professor,
CTIMS, Shahpur, Jalandhar-144020
NATIONAL INCOME
Mushtaq Ahmad Shah
Assistant professor,
CTIMS, Shahpur, Jalandhar-144020

2. National Income
 Introduction
 Meaning of National Income
 Different Concepts of National Income
 Methods of Measurement of National
Income
 Problems in Estimation of National Income
 Importance of National Income
Outline of Presentation
 Introduction
 Meaning of National Income
 Different Concepts of National Income
 Methods of Measurement of National
Income
 Problems in Estimation of National Income
 Importance of National Income
 Introduction
 Meaning of National Income
 Different Concepts of National Income
 Methods of Measurement of National
Income
 Problems in Estimation of National Income
 Importance of National Income
National Income

3. National Income
 National income is an uncertain term which is used interchangeably with national
dividend, national output and national expenditure.
 The definitions of national income can be grouped into two classes: One, the
traditional definitions advanced by Marshall, Pigou and Fisher; and modern
definition by keynesian
 The labour and capital of a country acting on its natural resources produce annually a
certain net aggregate of commodities material and immaterial including services of all
kinds- (Marshall)
 In the words of Pigou, “National income is that part of objective income of the
community, including of course income derived from abroad which can be measured
in money.”
 National income is a collection of goods and services reduced to a common basis by
being measured in terms of money (Hicks)
Introduction (Meaning and Definition)
 National income is an uncertain term which is used interchangeably with national
dividend, national output and national expenditure.
 The definitions of national income can be grouped into two classes: One, the
traditional definitions advanced by Marshall, Pigou and Fisher; and modern
definition by keynesian
 The labour and capital of a country acting on its natural resources produce annually a
certain net aggregate of commodities material and immaterial including services of all
kinds- (Marshall)
 In the words of Pigou, “National income is that part of objective income of the
community, including of course income derived from abroad which can be measured
in money.”
 National income is a collection of goods and services reduced to a common basis by
being measured in terms of money (Hicks)
 National income is an uncertain term which is used interchangeably with national
dividend, national output and national expenditure.
 The definitions of national income can be grouped into two classes: One, the
traditional definitions advanced by Marshall, Pigou and Fisher; and modern
definition by keynesian
 The labour and capital of a country acting on its natural resources produce annually a
certain net aggregate of commodities material and immaterial including services of all
kinds- (Marshall)
 In the words of Pigou, “National income is that part of objective income of the
community, including of course income derived from abroad which can be measured
in money.”
 National income is a collection of goods and services reduced to a common basis by
being measured in terms of money (Hicks)
National Income
 National income is an uncertain term which is used interchangeably with national
dividend, national output and national expenditure.
 The definitions of national income can be grouped into two classes: One, the
traditional definitions advanced by Marshall, Pigou and Fisher; and modern
definition by keynesian
 The labour and capital of a country acting on its natural resources produce annually a
certain net aggregate of commodities material and immaterial including services of all
kinds- (Marshall)
 In the words of Pigou, “National income is that part of objective income of the
community, including of course income derived from abroad which can be measured
in money.”
 National income is a collection of goods and services reduced to a common basis by
being measured in terms of money (Hicks)
Introduction (Meaning and Definition)
 National income is an uncertain term which is used interchangeably with national
dividend, national output and national expenditure.
 The definitions of national income can be grouped into two classes: One, the
traditional definitions advanced by Marshall, Pigou and Fisher; and modern
definition by keynesian
 The labour and capital of a country acting on its natural resources produce annually a
certain net aggregate of commodities material and immaterial including services of all
kinds- (Marshall)
 In the words of Pigou, “National income is that part of objective income of the
community, including of course income derived from abroad which can be measured
in money.”
 National income is a collection of goods and services reduced to a common basis by
being measured in terms of money (Hicks)
 National income is an uncertain term which is used interchangeably with national
dividend, national output and national expenditure.
 The definitions of national income can be grouped into two classes: One, the
traditional definitions advanced by Marshall, Pigou and Fisher; and modern
definition by keynesian
 The labour and capital of a country acting on its natural resources produce annually a
certain net aggregate of commodities material and immaterial including services of all
kinds- (Marshall)
 In the words of Pigou, “National income is that part of objective income of the
community, including of course income derived from abroad which can be measured
in money.”
 National income is a collection of goods and services reduced to a common basis by
being measured in terms of money (Hicks)

4. National Income
Nature of National Income
Is defined as the total market value of all the final goods and services produced
in an economy in a given period of time. Thus it measures the monetary value of
the flow of output of final goods and services produced in an economy over a
period of time.
 Therefore, all the above definitions make it clear that national income is a
monetary measure of:
 The net or final value of all products and services
 In an economy during a time period (usually a year)
 Counted without duplication
 Both in the public and private sector of products and services
 In consumption and capital goods sector
 The net gains from international transactions.
Nature of National Income
Is defined as the total market value of all the final goods and services produced
in an economy in a given period of time. Thus it measures the monetary value of
the flow of output of final goods and services produced in an economy over a
period of time.
 Therefore, all the above definitions make it clear that national income is a
monetary measure of:
 The net or final value of all products and services
 In an economy during a time period (usually a year)
 Counted without duplication
 Both in the public and private sector of products and services
 In consumption and capital goods sector
 The net gains from international transactions.
National Income
Nature of National Income
Is defined as the total market value of all the final goods and services produced
in an economy in a given period of time. Thus it measures the monetary value of
the flow of output of final goods and services produced in an economy over a
period of time.
 Therefore, all the above definitions make it clear that national income is a
monetary measure of:
 The net or final value of all products and services
 In an economy during a time period (usually a year)
 Counted without duplication
 Both in the public and private sector of products and services
 In consumption and capital goods sector
 The net gains from international transactions.
Nature of National Income
Is defined as the total market value of all the final goods and services produced
in an economy in a given period of time. Thus it measures the monetary value of
the flow of output of final goods and services produced in an economy over a
period of time.
 Therefore, all the above definitions make it clear that national income is a
monetary measure of:
 The net or final value of all products and services
 In an economy during a time period (usually a year)
 Counted without duplication
 Both in the public and private sector of products and services
 In consumption and capital goods sector
 The net gains from international transactions.

5. National Income
 Various approaches of national income
 Gross Domestic Product (GDP),
 Net Domestic Product (NDP)
 Gross National Product (GNP),
 Net National Product (NNP),
 Personal Income (PI),
 Disposable Income (DI), and
 Per Capita Income (PCI).
 These different concepts explain the phenomenon of
economic activities of the various sectors of the economy.
Concepts of National Income
 Various approaches of national income
 Gross Domestic Product (GDP),
 Net Domestic Product (NDP)
 Gross National Product (GNP),
 Net National Product (NNP),
 Personal Income (PI),
 Disposable Income (DI), and
 Per Capita Income (PCI).
 These different concepts explain the phenomenon of
economic activities of the various sectors of the economy.
 Various approaches of national income
 Gross Domestic Product (GDP),
 Net Domestic Product (NDP)
 Gross National Product (GNP),
 Net National Product (NNP),
 Personal Income (PI),
 Disposable Income (DI), and
 Per Capita Income (PCI).
 These different concepts explain the phenomenon of
economic activities of the various sectors of the economy.
National Income
 Various approaches of national income
 Gross Domestic Product (GDP),
 Net Domestic Product (NDP)
 Gross National Product (GNP),
 Net National Product (NNP),
 Personal Income (PI),
 Disposable Income (DI), and
 Per Capita Income (PCI).
 These different concepts explain the phenomenon of
economic activities of the various sectors of the economy.
 Various approaches of national income
 Gross Domestic Product (GDP),
 Net Domestic Product (NDP)
 Gross National Product (GNP),
 Net National Product (NNP),
 Personal Income (PI),
 Disposable Income (DI), and
 Per Capita Income (PCI).
 These different concepts explain the phenomenon of
economic activities of the various sectors of the economy.
 Various approaches of national income
 Gross Domestic Product (GDP),
 Net Domestic Product (NDP)
 Gross National Product (GNP),
 Net National Product (NNP),
 Personal Income (PI),
 Disposable Income (DI), and
 Per Capita Income (PCI).
 These different concepts explain the phenomenon of
economic activities of the various sectors of the economy.

6. Nature of National Income
 NI can be estimated at current or constant prices.
 If NI is estimated on the basis of the prevailing prices it is called NI at
current/Nominal price (i.e. not adjusted for inflation). If NI is measured on the
basis of some fixed price, that is price prevailing at a point of time or in some
base year it is known as NI at constant or real price (adjusted for inflation).
 NI can also be estimated at factor cost or market prices
 NI at factor cost is estimated as the sum of net value added by the different
producing units and the consumption of fixed capital. The contribution of each
producing unit to the current flow of goods and services is known as the net
value added.
 Conceptually, the value of NI whether estimated at market price or factor cost
must be identical. This is because the final value of goods and services must be
equal to the cost involved in their production. (NB: NI at market price less indirect
taxes is equal to NI at factor cost)
 NI can be estimated at current or constant prices.
 If NI is estimated on the basis of the prevailing prices it is called NI at
current/Nominal price (i.e. not adjusted for inflation). If NI is measured on the
basis of some fixed price, that is price prevailing at a point of time or in some
base year it is known as NI at constant or real price (adjusted for inflation).
 NI can also be estimated at factor cost or market prices
 NI at factor cost is estimated as the sum of net value added by the different
producing units and the consumption of fixed capital. The contribution of each
producing unit to the current flow of goods and services is known as the net
value added.
 Conceptually, the value of NI whether estimated at market price or factor cost
must be identical. This is because the final value of goods and services must be
equal to the cost involved in their production. (NB: NI at market price less indirect
taxes is equal to NI at factor cost)
 NI can be estimated at current or constant prices.
 If NI is estimated on the basis of the prevailing prices it is called NI at
current/Nominal price (i.e. not adjusted for inflation). If NI is measured on the
basis of some fixed price, that is price prevailing at a point of time or in some
base year it is known as NI at constant or real price (adjusted for inflation).
 NI can also be estimated at factor cost or market prices
 NI at factor cost is estimated as the sum of net value added by the different
producing units and the consumption of fixed capital. The contribution of each
producing unit to the current flow of goods and services is known as the net
value added.
 Conceptually, the value of NI whether estimated at market price or factor cost
must be identical. This is because the final value of goods and services must be
equal to the cost involved in their production. (NB: NI at market price less indirect
taxes is equal to NI at factor cost)
Nature of National Income
 NI can be estimated at current or constant prices.
 If NI is estimated on the basis of the prevailing prices it is called NI at
current/Nominal price (i.e. not adjusted for inflation). If NI is measured on the
basis of some fixed price, that is price prevailing at a point of time or in some
base year it is known as NI at constant or real price (adjusted for inflation).
 NI can also be estimated at factor cost or market prices
 NI at factor cost is estimated as the sum of net value added by the different
producing units and the consumption of fixed capital. The contribution of each
producing unit to the current flow of goods and services is known as the net
value added.
 Conceptually, the value of NI whether estimated at market price or factor cost
must be identical. This is because the final value of goods and services must be
equal to the cost involved in their production. (NB: NI at market price less indirect
taxes is equal to NI at factor cost)
 NI can be estimated at current or constant prices.
 If NI is estimated on the basis of the prevailing prices it is called NI at
current/Nominal price (i.e. not adjusted for inflation). If NI is measured on the
basis of some fixed price, that is price prevailing at a point of time or in some
base year it is known as NI at constant or real price (adjusted for inflation).
 NI can also be estimated at factor cost or market prices
 NI at factor cost is estimated as the sum of net value added by the different
producing units and the consumption of fixed capital. The contribution of each
producing unit to the current flow of goods and services is known as the net
value added.
 Conceptually, the value of NI whether estimated at market price or factor cost
must be identical. This is because the final value of goods and services must be
equal to the cost involved in their production. (NB: NI at market price less indirect
taxes is equal to NI at factor cost)
 NI can be estimated at current or constant prices.
 If NI is estimated on the basis of the prevailing prices it is called NI at
current/Nominal price (i.e. not adjusted for inflation). If NI is measured on the
basis of some fixed price, that is price prevailing at a point of time or in some
base year it is known as NI at constant or real price (adjusted for inflation).
 NI can also be estimated at factor cost or market prices
 NI at factor cost is estimated as the sum of net value added by the different
producing units and the consumption of fixed capital. The contribution of each
producing unit to the current flow of goods and services is known as the net
value added.
 Conceptually, the value of NI whether estimated at market price or factor cost
must be identical. This is because the final value of goods and services must be
equal to the cost involved in their production. (NB: NI at market price less indirect
taxes is equal to NI at factor cost)

7. Concepts of National Income
Gross Domestic Product (GDP)
Derznberg defines GDP at market price as
“the market value of the output of final
goods and services produced in the
domestic territory of a country during an
accounting year
GDP is geographically focused; It includes
only output produced within a nation’s
borders regardless of whose factors are
used. Thus factors of production (labour,
capital, land, management,
entrepreneurship*) may be owned by
any one (citizens or foreigners).
Gross Domestic Product (GDP)
Derznberg defines GDP at market price as
“the market value of the output of final
goods and services produced in the
domestic territory of a country during an
accounting year
GDP is geographically focused; It includes
only output produced within a nation’s
borders regardless of whose factors are
used. Thus factors of production (labour,
capital, land, management,
entrepreneurship*) may be owned by
any one (citizens or foreigners).
Gross Domestic Product (GDP)
Derznberg defines GDP at market price as
“the market value of the output of final
goods and services produced in the
domestic territory of a country during an
accounting year
GDP is geographically focused; It includes
only output produced within a nation’s
borders regardless of whose factors are
used. Thus factors of production (labour,
capital, land, management,
entrepreneurship*) may be owned by
any one (citizens or foreigners).
Concepts of National Income

8. Concepts of National Income
• Net Domestic Product (NDP) : NDP is the value of net output of the
economy during the year. Some of the country’s capital equipment wears out or
becomes obsolete each year during the production process. The value of this
capital consumption is some percentage of gross investment which is deducted
from GDP. Thus Net Domestic Product = GDP at Factor Cost – Depreciation.
NDP = GDP – Depreciation
• While calculating GDP no provision is made for depreciation allowance (also
called capital consumption allowance). In such a situation GDP will not reveal
complete flow of goods and services through various sectors.
• When depreciation allowance is subtracted from NDP we get Net Domestic
Product.
• Net Domestic Product (NDP) : NDP is the value of net output of the
economy during the year. Some of the country’s capital equipment wears out or
becomes obsolete each year during the production process. The value of this
capital consumption is some percentage of gross investment which is deducted
from GDP. Thus Net Domestic Product = GDP at Factor Cost – Depreciation.
NDP = GDP – Depreciation
• While calculating GDP no provision is made for depreciation allowance (also
called capital consumption allowance). In such a situation GDP will not reveal
complete flow of goods and services through various sectors.
• When depreciation allowance is subtracted from NDP we get Net Domestic
Product.
• Net Domestic Product (NDP) : NDP is the value of net output of the
economy during the year. Some of the country’s capital equipment wears out or
becomes obsolete each year during the production process. The value of this
capital consumption is some percentage of gross investment which is deducted
from GDP. Thus Net Domestic Product = GDP at Factor Cost – Depreciation.
NDP = GDP – Depreciation
• While calculating GDP no provision is made for depreciation allowance (also
called capital consumption allowance). In such a situation GDP will not reveal
complete flow of goods and services through various sectors.
• When depreciation allowance is subtracted from NDP we get Net Domestic
Product.
Concepts of National Income
• Net Domestic Product (NDP) : NDP is the value of net output of the
economy during the year. Some of the country’s capital equipment wears out or
becomes obsolete each year during the production process. The value of this
capital consumption is some percentage of gross investment which is deducted
from GDP. Thus Net Domestic Product = GDP at Factor Cost – Depreciation.
NDP = GDP – Depreciation
• While calculating GDP no provision is made for depreciation allowance (also
called capital consumption allowance). In such a situation GDP will not reveal
complete flow of goods and services through various sectors.
• When depreciation allowance is subtracted from NDP we get Net Domestic
Product.
• Net Domestic Product (NDP) : NDP is the value of net output of the
economy during the year. Some of the country’s capital equipment wears out or
becomes obsolete each year during the production process. The value of this
capital consumption is some percentage of gross investment which is deducted
from GDP. Thus Net Domestic Product = GDP at Factor Cost – Depreciation.
NDP = GDP – Depreciation
• While calculating GDP no provision is made for depreciation allowance (also
called capital consumption allowance). In such a situation GDP will not reveal
complete flow of goods and services through various sectors.
• When depreciation allowance is subtracted from NDP we get Net Domestic
Product.
• Net Domestic Product (NDP) : NDP is the value of net output of the
economy during the year. Some of the country’s capital equipment wears out or
becomes obsolete each year during the production process. The value of this
capital consumption is some percentage of gross investment which is deducted
from GDP. Thus Net Domestic Product = GDP at Factor Cost – Depreciation.
NDP = GDP – Depreciation
• While calculating GDP no provision is made for depreciation allowance (also
called capital consumption allowance). In such a situation GDP will not reveal
complete flow of goods and services through various sectors.
• When depreciation allowance is subtracted from NDP we get Net Domestic
Product.

9. Concepts of National Income
• Gross National Product (GNP) refers to all final goods and services produced by
the nationals/citizens of a country regardless of where they produce it. Thus
Output produced by a nation’s factors of production no matter where it takes
place.
GNP =GDP + NFIA
GNP includes four types of final goods and services:
• (1) Consumers’ goods and services to satisfy the immediate wants of the people;
• (2) Gross private domestic investment in capital goods consisting of fixed capital
formation, residential construction and inventories of finished and unfinished
goods;
• (3) Goods and services produced by the government; and
• (4) Net exports of goods and services, i.e., the difference between value of exports
and imports of goods and services, known as net income from abroad.
• Gross National Product (GNP) refers to all final goods and services produced by
the nationals/citizens of a country regardless of where they produce it. Thus
Output produced by a nation’s factors of production no matter where it takes
place.
GNP =GDP + NFIA
GNP includes four types of final goods and services:
• (1) Consumers’ goods and services to satisfy the immediate wants of the people;
• (2) Gross private domestic investment in capital goods consisting of fixed capital
formation, residential construction and inventories of finished and unfinished
goods;
• (3) Goods and services produced by the government; and
• (4) Net exports of goods and services, i.e., the difference between value of exports
and imports of goods and services, known as net income from abroad.
• Gross National Product (GNP) refers to all final goods and services produced by
the nationals/citizens of a country regardless of where they produce it. Thus
Output produced by a nation’s factors of production no matter where it takes
place.
GNP =GDP + NFIA
GNP includes four types of final goods and services:
• (1) Consumers’ goods and services to satisfy the immediate wants of the people;
• (2) Gross private domestic investment in capital goods consisting of fixed capital
formation, residential construction and inventories of finished and unfinished
goods;
• (3) Goods and services produced by the government; and
• (4) Net exports of goods and services, i.e., the difference between value of exports
and imports of goods and services, known as net income from abroad.
Concepts of National Income
• Gross National Product (GNP) refers to all final goods and services produced by
the nationals/citizens of a country regardless of where they produce it. Thus
Output produced by a nation’s factors of production no matter where it takes
place.
GNP =GDP + NFIA
GNP includes four types of final goods and services:
• (1) Consumers’ goods and services to satisfy the immediate wants of the people;
• (2) Gross private domestic investment in capital goods consisting of fixed capital
formation, residential construction and inventories of finished and unfinished
goods;
• (3) Goods and services produced by the government; and
• (4) Net exports of goods and services, i.e., the difference between value of exports
and imports of goods and services, known as net income from abroad.
• Gross National Product (GNP) refers to all final goods and services produced by
the nationals/citizens of a country regardless of where they produce it. Thus
Output produced by a nation’s factors of production no matter where it takes
place.
GNP =GDP + NFIA
GNP includes four types of final goods and services:
• (1) Consumers’ goods and services to satisfy the immediate wants of the people;
• (2) Gross private domestic investment in capital goods consisting of fixed capital
formation, residential construction and inventories of finished and unfinished
goods;
• (3) Goods and services produced by the government; and
• (4) Net exports of goods and services, i.e., the difference between value of exports
and imports of goods and services, known as net income from abroad.
• Gross National Product (GNP) refers to all final goods and services produced by
the nationals/citizens of a country regardless of where they produce it. Thus
Output produced by a nation’s factors of production no matter where it takes
place.
GNP =GDP + NFIA
GNP includes four types of final goods and services:
• (1) Consumers’ goods and services to satisfy the immediate wants of the people;
• (2) Gross private domestic investment in capital goods consisting of fixed capital
formation, residential construction and inventories of finished and unfinished
goods;
• (3) Goods and services produced by the government; and
• (4) Net exports of goods and services, i.e., the difference between value of exports
and imports of goods and services, known as net income from abroad.

10. Concepts of National Income
• Net National Product ( NNP) NNP is the market value of all final goods and
services after allowing for depreciation and/or replacement). It is also called
National Income at market price. When charges for depreciation are deducted
from the GNP, NNP is obtained. Thus,
NNP =GNP - Depreciation
• NNP includes the value of total output of consumption goods and investment
goods. But the process of production uses up a certain amount of fixed capital.
Some fixed equipment wears out, its other components are damaged or
destroyed, and still others are rendered obsolete through technological changes.
• All this process is termed depreciation or capital consumption allowance. In
order to arrive at NNP, we deduct depreciation from GNP. The word ‘net’ refers
to the exclusion of that part of total output which represents depreciation.
• Net National Product ( NNP) NNP is the market value of all final goods and
services after allowing for depreciation and/or replacement). It is also called
National Income at market price. When charges for depreciation are deducted
from the GNP, NNP is obtained. Thus,
NNP =GNP - Depreciation
• NNP includes the value of total output of consumption goods and investment
goods. But the process of production uses up a certain amount of fixed capital.
Some fixed equipment wears out, its other components are damaged or
destroyed, and still others are rendered obsolete through technological changes.
• All this process is termed depreciation or capital consumption allowance. In
order to arrive at NNP, we deduct depreciation from GNP. The word ‘net’ refers
to the exclusion of that part of total output which represents depreciation.
• Net National Product ( NNP) NNP is the market value of all final goods and
services after allowing for depreciation and/or replacement). It is also called
National Income at market price. When charges for depreciation are deducted
from the GNP, NNP is obtained. Thus,
NNP =GNP - Depreciation
• NNP includes the value of total output of consumption goods and investment
goods. But the process of production uses up a certain amount of fixed capital.
Some fixed equipment wears out, its other components are damaged or
destroyed, and still others are rendered obsolete through technological changes.
• All this process is termed depreciation or capital consumption allowance. In
order to arrive at NNP, we deduct depreciation from GNP. The word ‘net’ refers
to the exclusion of that part of total output which represents depreciation.
Concepts of National Income
• Net National Product ( NNP) NNP is the market value of all final goods and
services after allowing for depreciation and/or replacement). It is also called
National Income at market price. When charges for depreciation are deducted
from the GNP, NNP is obtained. Thus,
NNP =GNP - Depreciation
• NNP includes the value of total output of consumption goods and investment
goods. But the process of production uses up a certain amount of fixed capital.
Some fixed equipment wears out, its other components are damaged or
destroyed, and still others are rendered obsolete through technological changes.
• All this process is termed depreciation or capital consumption allowance. In
order to arrive at NNP, we deduct depreciation from GNP. The word ‘net’ refers
to the exclusion of that part of total output which represents depreciation.
• Net National Product ( NNP) NNP is the market value of all final goods and
services after allowing for depreciation and/or replacement). It is also called
National Income at market price. When charges for depreciation are deducted
from the GNP, NNP is obtained. Thus,
NNP =GNP - Depreciation
• NNP includes the value of total output of consumption goods and investment
goods. But the process of production uses up a certain amount of fixed capital.
Some fixed equipment wears out, its other components are damaged or
destroyed, and still others are rendered obsolete through technological changes.
• All this process is termed depreciation or capital consumption allowance. In
order to arrive at NNP, we deduct depreciation from GNP. The word ‘net’ refers
to the exclusion of that part of total output which represents depreciation.
• Net National Product ( NNP) NNP is the market value of all final goods and
services after allowing for depreciation and/or replacement). It is also called
National Income at market price. When charges for depreciation are deducted
from the GNP, NNP is obtained. Thus,
NNP =GNP - Depreciation
• NNP includes the value of total output of consumption goods and investment
goods. But the process of production uses up a certain amount of fixed capital.
Some fixed equipment wears out, its other components are damaged or
destroyed, and still others are rendered obsolete through technological changes.
• All this process is termed depreciation or capital consumption allowance. In
order to arrive at NNP, we deduct depreciation from GNP. The word ‘net’ refers
to the exclusion of that part of total output which represents depreciation.

11. Concepts of National Income
National Income at factor cost
National income at factor cost
means the sum of all incomes
earned by resources suppliers
for their contribution of land,
labor, capital, and
organizational ability which go
into the years net production.
Hence, the sum of the income
received by factors of
production in the form of rent,
wages, interest and profit is
called National Income.
National Income at factor cost
National income at factor cost
means the sum of all incomes
earned by resources suppliers
for their contribution of land,
labor, capital, and
organizational ability which go
into the years net production.
Hence, the sum of the income
received by factors of
production in the form of rent,
wages, interest and profit is
called National Income.
National Income at factor cost
National income at factor cost
means the sum of all incomes
earned by resources suppliers
for their contribution of land,
labor, capital, and
organizational ability which go
into the years net production.
Hence, the sum of the income
received by factors of
production in the form of rent,
wages, interest and profit is
called National Income.
NI = NNP +subsidies-Indirect Taxes
Concepts of National Income
NI = NNP +subsidies-Indirect Taxes

12. Concepts of National Income
• Private Income: private income is income obtained by private individuals from
any source, productive or otherwise, and the retained income of corporations. It
can be arrived at from NNP at Factor Cost by making certain additions and
deductions.
• The additions include transfer payments such as pensions, unemployment
allowances, sickness and other social security benefits, gifts and remittances
from abroad, windfall gains from lotteries or from horse racing, and interest on
public debt. The deductions include income from government departments as
well as surpluses from public undertakings, and employees’ contribution to
social security schemes like provident funds, life insurance, etc.
• Thus Private Income = National Income (or NNP at Factor Cost) +
Transfer Payments + Interest on Public Debt — Social Security —
Profits and Surpluses of Public Undertakings.
• Private Income: private income is income obtained by private individuals from
any source, productive or otherwise, and the retained income of corporations. It
can be arrived at from NNP at Factor Cost by making certain additions and
deductions.
• The additions include transfer payments such as pensions, unemployment
allowances, sickness and other social security benefits, gifts and remittances
from abroad, windfall gains from lotteries or from horse racing, and interest on
public debt. The deductions include income from government departments as
well as surpluses from public undertakings, and employees’ contribution to
social security schemes like provident funds, life insurance, etc.
• Thus Private Income = National Income (or NNP at Factor Cost) +
Transfer Payments + Interest on Public Debt — Social Security —
Profits and Surpluses of Public Undertakings.
• Private Income: private income is income obtained by private individuals from
any source, productive or otherwise, and the retained income of corporations. It
can be arrived at from NNP at Factor Cost by making certain additions and
deductions.
• The additions include transfer payments such as pensions, unemployment
allowances, sickness and other social security benefits, gifts and remittances
from abroad, windfall gains from lotteries or from horse racing, and interest on
public debt. The deductions include income from government departments as
well as surpluses from public undertakings, and employees’ contribution to
social security schemes like provident funds, life insurance, etc.
• Thus Private Income = National Income (or NNP at Factor Cost) +
Transfer Payments + Interest on Public Debt — Social Security —
Profits and Surpluses of Public Undertakings.
Concepts of National Income
• Private Income: private income is income obtained by private individuals from
any source, productive or otherwise, and the retained income of corporations. It
can be arrived at from NNP at Factor Cost by making certain additions and
deductions.
• The additions include transfer payments such as pensions, unemployment
allowances, sickness and other social security benefits, gifts and remittances
from abroad, windfall gains from lotteries or from horse racing, and interest on
public debt. The deductions include income from government departments as
well as surpluses from public undertakings, and employees’ contribution to
social security schemes like provident funds, life insurance, etc.
• Thus Private Income = National Income (or NNP at Factor Cost) +
Transfer Payments + Interest on Public Debt — Social Security —
Profits and Surpluses of Public Undertakings.
• Private Income: private income is income obtained by private individuals from
any source, productive or otherwise, and the retained income of corporations. It
can be arrived at from NNP at Factor Cost by making certain additions and
deductions.
• The additions include transfer payments such as pensions, unemployment
allowances, sickness and other social security benefits, gifts and remittances
from abroad, windfall gains from lotteries or from horse racing, and interest on
public debt. The deductions include income from government departments as
well as surpluses from public undertakings, and employees’ contribution to
social security schemes like provident funds, life insurance, etc.
• Thus Private Income = National Income (or NNP at Factor Cost) +
Transfer Payments + Interest on Public Debt — Social Security —
Profits and Surpluses of Public Undertakings.
• Private Income: private income is income obtained by private individuals from
any source, productive or otherwise, and the retained income of corporations. It
can be arrived at from NNP at Factor Cost by making certain additions and
deductions.
• The additions include transfer payments such as pensions, unemployment
allowances, sickness and other social security benefits, gifts and remittances
from abroad, windfall gains from lotteries or from horse racing, and interest on
public debt. The deductions include income from government departments as
well as surpluses from public undertakings, and employees’ contribution to
social security schemes like provident funds, life insurance, etc.
• Thus Private Income = National Income (or NNP at Factor Cost) +
Transfer Payments + Interest on Public Debt — Social Security —
Profits and Surpluses of Public Undertakings.

13. Concepts of National Income
• 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.
• Personal income is derived from national income by deducting undistributed
corporate profits, profit taxes, and employees’ contributions to social security
schemes. These three components are excluded from national income because
they do reach individuals.
• Personal income differs from private income in that it is less than the latter
because it excludes undistributed corporate profits.
• Thus Personal Income = Private Income – Undistributed Corporate Profits –
Profit Taxes.
• 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.
• Personal income is derived from national income by deducting undistributed
corporate profits, profit taxes, and employees’ contributions to social security
schemes. These three components are excluded from national income because
they do reach individuals.
• Personal income differs from private income in that it is less than the latter
because it excludes undistributed corporate profits.
• Thus Personal Income = Private Income – Undistributed Corporate Profits –
Profit Taxes.
• 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.
• Personal income is derived from national income by deducting undistributed
corporate profits, profit taxes, and employees’ contributions to social security
schemes. These three components are excluded from national income because
they do reach individuals.
• Personal income differs from private income in that it is less than the latter
because it excludes undistributed corporate profits.
• Thus Personal Income = Private Income – Undistributed Corporate Profits –
Profit Taxes.
Concepts of National Income
• 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.
• Personal income is derived from national income by deducting undistributed
corporate profits, profit taxes, and employees’ contributions to social security
schemes. These three components are excluded from national income because
they do reach individuals.
• Personal income differs from private income in that it is less than the latter
because it excludes undistributed corporate profits.
• Thus Personal Income = Private Income – Undistributed Corporate Profits –
Profit Taxes.
• 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.
• Personal income is derived from national income by deducting undistributed
corporate profits, profit taxes, and employees’ contributions to social security
schemes. These three components are excluded from national income because
they do reach individuals.
• Personal income differs from private income in that it is less than the latter
because it excludes undistributed corporate profits.
• Thus Personal Income = Private Income – Undistributed Corporate Profits –
Profit Taxes.
• 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.
• Personal income is derived from national income by deducting undistributed
corporate profits, profit taxes, and employees’ contributions to social security
schemes. These three components are excluded from national income because
they do reach individuals.
• Personal income differs from private income in that it is less than the latter
because it excludes undistributed corporate profits.
• Thus Personal Income = Private Income – Undistributed Corporate Profits –
Profit Taxes.

14. Concepts of National Income
• Disposable Income: The whole of personal income is not available for
consumption as personal direct taxes have to be paid. Income left after payment
of personal direct taxes (including property taxes, insurance payments) from
personal income is call disposable personal income.
DPI =Personal income – Personal Direct taxes
• The disposable personal income may be spent fully or save. Thus, it is not the
entire DPI spent on consumption. A part of it may be saved Therefore disposable
income is equal to consumption and savings.
DPI = consumption +Saving.
• Disposable Income: The whole of personal income is not available for
consumption as personal direct taxes have to be paid. Income left after payment
of personal direct taxes (including property taxes, insurance payments) from
personal income is call disposable personal income.
DPI =Personal income – Personal Direct taxes
• The disposable personal income may be spent fully or save. Thus, it is not the
entire DPI spent on consumption. A part of it may be saved Therefore disposable
income is equal to consumption and savings.
DPI = consumption +Saving.
• Disposable Income: The whole of personal income is not available for
consumption as personal direct taxes have to be paid. Income left after payment
of personal direct taxes (including property taxes, insurance payments) from
personal income is call disposable personal income.
DPI =Personal income – Personal Direct taxes
• The disposable personal income may be spent fully or save. Thus, it is not the
entire DPI spent on consumption. A part of it may be saved Therefore disposable
income is equal to consumption and savings.
DPI = consumption +Saving.
Concepts of National Income
• Disposable Income: The whole of personal income is not available for
consumption as personal direct taxes have to be paid. Income left after payment
of personal direct taxes (including property taxes, insurance payments) from
personal income is call disposable personal income.
DPI =Personal income – Personal Direct taxes
• The disposable personal income may be spent fully or save. Thus, it is not the
entire DPI spent on consumption. A part of it may be saved Therefore disposable
income is equal to consumption and savings.
DPI = consumption +Saving.
• Disposable Income: The whole of personal income is not available for
consumption as personal direct taxes have to be paid. Income left after payment
of personal direct taxes (including property taxes, insurance payments) from
personal income is call disposable personal income.
DPI =Personal income – Personal Direct taxes
• The disposable personal income may be spent fully or save. Thus, it is not the
entire DPI spent on consumption. A part of it may be saved Therefore disposable
income is equal to consumption and savings.
DPI = consumption +Saving.
• Disposable Income: The whole of personal income is not available for
consumption as personal direct taxes have to be paid. Income left after payment
of personal direct taxes (including property taxes, insurance payments) from
personal income is call disposable personal income.
DPI =Personal income – Personal Direct taxes
• The disposable personal income may be spent fully or save. Thus, it is not the
entire DPI spent on consumption. A part of it may be saved Therefore disposable
income is equal to consumption and savings.
DPI = consumption +Saving.

15. • Real Income: Real income can also be known as real wages. Real income
refers to the wages of an individual or entity after accounting for inflation.
Real Income = Wages - (Wages x Inflation Rate)
• Real income is national income expressed in terms of a general level of prices of a
particular year taken as base. National income is the value of goods and services
produced as expressed in terms of money at current prices. But it does not
indicate the real state of the economy.
• Per capita income is a measure of the amount of money earned per person
in a nation or geographic region. Per capita income can be used to determine the
average per-person income for an area and to evaluate the standard of living and
quality of life of the population. Per capita income for a nation is calculated by
dividing the country's national income by its population.
• Real Income: Real income can also be known as real wages. Real income
refers to the wages of an individual or entity after accounting for inflation.
Real Income = Wages - (Wages x Inflation Rate)
• Real income is national income expressed in terms of a general level of prices of a
particular year taken as base. National income is the value of goods and services
produced as expressed in terms of money at current prices. But it does not
indicate the real state of the economy.
• Per capita income is a measure of the amount of money earned per person
in a nation or geographic region. Per capita income can be used to determine the
average per-person income for an area and to evaluate the standard of living and
quality of life of the population. Per capita income for a nation is calculated by
dividing the country's national income by its population.
• Real Income: Real income can also be known as real wages. Real income
refers to the wages of an individual or entity after accounting for inflation.
Real Income = Wages - (Wages x Inflation Rate)
• Real income is national income expressed in terms of a general level of prices of a
particular year taken as base. National income is the value of goods and services
produced as expressed in terms of money at current prices. But it does not
indicate the real state of the economy.
• Per capita income is a measure of the amount of money earned per person
in a nation or geographic region. Per capita income can be used to determine the
average per-person income for an area and to evaluate the standard of living and
quality of life of the population. Per capita income for a nation is calculated by
dividing the country's national income by its population.
• Real Income: Real income can also be known as real wages. Real income
refers to the wages of an individual or entity after accounting for inflation.
Real Income = Wages - (Wages x Inflation Rate)
• Real income is national income expressed in terms of a general level of prices of a
particular year taken as base. National income is the value of goods and services
produced as expressed in terms of money at current prices. But it does not
indicate the real state of the economy.
• Per capita income is a measure of the amount of money earned per person
in a nation or geographic region. Per capita income can be used to determine the
average per-person income for an area and to evaluate the standard of living and
quality of life of the population. Per capita income for a nation is calculated by
dividing the country's national income by its population.
• Real Income: Real income can also be known as real wages. Real income
refers to the wages of an individual or entity after accounting for inflation.
Real Income = Wages - (Wages x Inflation Rate)
• Real income is national income expressed in terms of a general level of prices of a
particular year taken as base. National income is the value of goods and services
produced as expressed in terms of money at current prices. But it does not
indicate the real state of the economy.
• Per capita income is a measure of the amount of money earned per person
in a nation or geographic region. Per capita income can be used to determine the
average per-person income for an area and to evaluate the standard of living and
quality of life of the population. Per capita income for a nation is calculated by
dividing the country's national income by its population.
• Real Income: Real income can also be known as real wages. Real income
refers to the wages of an individual or entity after accounting for inflation.
Real Income = Wages - (Wages x Inflation Rate)
• Real income is national income expressed in terms of a general level of prices of a
particular year taken as base. National income is the value of goods and services
produced as expressed in terms of money at current prices. But it does not
indicate the real state of the economy.
• Per capita income is a measure of the amount of money earned per person
in a nation or geographic region. Per capita income can be used to determine the
average per-person income for an area and to evaluate the standard of living and
quality of life of the population. Per capita income for a nation is calculated by
dividing the country's national income by its population.

16. Methods of Measurement of National Income
 Instead of looking at who’s buying the output (the demand side), we can look at who’s being paid to
produce it (the supply side) and monetary value that exist in between sides
The total value of market incomes must equal the total value of final output, as well as the
expenditure made in acquiring the output
Income (Y) = Expenditure(E) = Output (O)
There are three common approaches to the measurement of national income:
Product/Output Method ( sometimes it employs the value added method)
 Income Method
 Spending / Expenditure
Value added Method
Mixed Method
 Instead of looking at who’s buying the output (the demand side), we can look at who’s being paid to
produce it (the supply side) and monetary value that exist in between sides
The total value of market incomes must equal the total value of final output, as well as the
expenditure made in acquiring the output
Income (Y) = Expenditure(E) = Output (O)
There are three common approaches to the measurement of national income:
Product/Output Method ( sometimes it employs the value added method)
 Income Method
 Spending / Expenditure
Value added Method
Mixed Method
 Instead of looking at who’s buying the output (the demand side), we can look at who’s being paid to
produce it (the supply side) and monetary value that exist in between sides
The total value of market incomes must equal the total value of final output, as well as the
expenditure made in acquiring the output
Income (Y) = Expenditure(E) = Output (O)
There are three common approaches to the measurement of national income:
Product/Output Method ( sometimes it employs the value added method)
 Income Method
 Spending / Expenditure
Value added Method
Mixed Method
Methods of Measurement of National Income
 Instead of looking at who’s buying the output (the demand side), we can look at who’s being paid to
produce it (the supply side) and monetary value that exist in between sides
The total value of market incomes must equal the total value of final output, as well as the
expenditure made in acquiring the output
Income (Y) = Expenditure(E) = Output (O)
There are three common approaches to the measurement of national income:
Product/Output Method ( sometimes it employs the value added method)
 Income Method
 Spending / Expenditure
Value added Method
Mixed Method
 Instead of looking at who’s buying the output (the demand side), we can look at who’s being paid to
produce it (the supply side) and monetary value that exist in between sides
The total value of market incomes must equal the total value of final output, as well as the
expenditure made in acquiring the output
Income (Y) = Expenditure(E) = Output (O)
There are three common approaches to the measurement of national income:
Product/Output Method ( sometimes it employs the value added method)
 Income Method
 Spending / Expenditure
Value added Method
Mixed Method
 Instead of looking at who’s buying the output (the demand side), we can look at who’s being paid to
produce it (the supply side) and monetary value that exist in between sides
The total value of market incomes must equal the total value of final output, as well as the
expenditure made in acquiring the output
Income (Y) = Expenditure(E) = Output (O)
There are three common approaches to the measurement of national income:
Product/Output Method ( sometimes it employs the value added method)
 Income Method
 Spending / Expenditure
Value added Method
Mixed Method

17. Output/Product/Production Approach
• This approach is also called the output method/ the inventory method/Goods Flow
Method/the census method. The method measures NI by considering the total
sum of the market value of all final goods and services produced in the production
units in an economy in a given period.
The product approach, classifies the economy into
major sectors which includes:
Industrial sector: e.g.: Agriculture Industry,
Mining, Manufacturing, Processing .
Services / Direct sector : In this sector the value of
services of such professions like doctors,
dramatics, soldiers, politicians, etc., are taken by
equating to their services.
International transaction sector: in this sector, the
value of goods exported and
imported, payment from abroad, are accounted
The product approach, classifies the economy into
major sectors which includes:
Industrial sector: e.g.: Agriculture Industry,
Mining, Manufacturing, Processing .
Services / Direct sector : In this sector the value of
services of such professions like doctors,
dramatics, soldiers, politicians, etc., are taken by
equating to their services.
International transaction sector: in this sector, the
value of goods exported and
imported, payment from abroad, are accounted
Output/Product/Production Approach
• This approach is also called the output method/ the inventory method/Goods Flow
Method/the census method. The method measures NI by considering the total
sum of the market value of all final goods and services produced in the production
units in an economy in a given period.
The product approach, classifies the economy into
major sectors which includes:
Industrial sector: e.g.: Agriculture Industry,
Mining, Manufacturing, Processing .
Services / Direct sector : In this sector the value of
services of such professions like doctors,
dramatics, soldiers, politicians, etc., are taken by
equating to their services.
International transaction sector: in this sector, the
value of goods exported and
imported, payment from abroad, are accounted
The product approach, classifies the economy into
major sectors which includes:
Industrial sector: e.g.: Agriculture Industry,
Mining, Manufacturing, Processing .
Services / Direct sector : In this sector the value of
services of such professions like doctors,
dramatics, soldiers, politicians, etc., are taken by
equating to their services.
International transaction sector: in this sector, the
value of goods exported and
imported, payment from abroad, are accounted

18. Output/Product Approach .......
• 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, the contributions to
production made by transport, communications, insurance companies, lawyers, doctors,
teachers, etc. are collected and assessed at market prices. Only the final goods and
services are included and the intermediary goods and services are left out.
• The approach is popular and successful in developed economies (especially in U.S.A) as it
is very easy to get data from government records. However in under developed countries
this method may give rise to various problems like imputation of money values to non-
monetized sector.
S=Q x P
• Where S= market value of output in sector
• Q= Quantity of output in the sector
• P= Market price of output in the sector
• 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, the contributions to
production made by transport, communications, insurance companies, lawyers, doctors,
teachers, etc. are collected and assessed at market prices. Only the final goods and
services are included and the intermediary goods and services are left out.
• The approach is popular and successful in developed economies (especially in U.S.A) as it
is very easy to get data from government records. However in under developed countries
this method may give rise to various problems like imputation of money values to non-
monetized sector.
S=Q x P
• Where S= market value of output in sector
• Q= Quantity of output in the sector
• P= Market price of output in the sector
• 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, the contributions to
production made by transport, communications, insurance companies, lawyers, doctors,
teachers, etc. are collected and assessed at market prices. Only the final goods and
services are included and the intermediary goods and services are left out.
• The approach is popular and successful in developed economies (especially in U.S.A) as it
is very easy to get data from government records. However in under developed countries
this method may give rise to various problems like imputation of money values to non-
monetized sector.
S=Q x P
• Where S= market value of output in sector
• Q= Quantity of output in the sector
• P= Market price of output in the sector
Output/Product Approach .......
• 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, the contributions to
production made by transport, communications, insurance companies, lawyers, doctors,
teachers, etc. are collected and assessed at market prices. Only the final goods and
services are included and the intermediary goods and services are left out.
• The approach is popular and successful in developed economies (especially in U.S.A) as it
is very easy to get data from government records. However in under developed countries
this method may give rise to various problems like imputation of money values to non-
monetized sector.
S=Q x P
• Where S= market value of output in sector
• Q= Quantity of output in the sector
• P= Market price of output in the sector
• 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, the contributions to
production made by transport, communications, insurance companies, lawyers, doctors,
teachers, etc. are collected and assessed at market prices. Only the final goods and
services are included and the intermediary goods and services are left out.
• The approach is popular and successful in developed economies (especially in U.S.A) as it
is very easy to get data from government records. However in under developed countries
this method may give rise to various problems like imputation of money values to non-
monetized sector.
S=Q x P
• Where S= market value of output in sector
• Q= Quantity of output in the sector
• P= Market price of output in the sector
• 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, the contributions to
production made by transport, communications, insurance companies, lawyers, doctors,
teachers, etc. are collected and assessed at market prices. Only the final goods and
services are included and the intermediary goods and services are left out.
• The approach is popular and successful in developed economies (especially in U.S.A) as it
is very easy to get data from government records. However in under developed countries
this method may give rise to various problems like imputation of money values to non-
monetized sector.
S=Q x P
• Where S= market value of output in sector
• Q= Quantity of output in the sector
• P= Market price of output in the sector

19. Income Approach
• A method of computing NI that measures the income (wages [W], rents[R],
interest[I], and profits[P]) earned by all factors of production in producing final
goods and services in a given period.
GDP =W +R +I + P
• A summation all the factor incomes over a period of time is known as NI (e.g.
GDP) at factor cost
• 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
• A method of computing NI that measures the income (wages [W], rents[R],
interest[I], and profits[P]) earned by all factors of production in producing final
goods and services in a given period.
GDP =W +R +I + P
• A summation all the factor incomes over a period of time is known as NI (e.g.
GDP) at factor cost
• 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
• A method of computing NI that measures the income (wages [W], rents[R],
interest[I], and profits[P]) earned by all factors of production in producing final
goods and services in a given period.
GDP =W +R +I + P
• A summation all the factor incomes over a period of time is known as NI (e.g.
GDP) at factor cost
• 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
Income Approach
• A method of computing NI that measures the income (wages [W], rents[R],
interest[I], and profits[P]) earned by all factors of production in producing final
goods and services in a given period.
GDP =W +R +I + P
• A summation all the factor incomes over a period of time is known as NI (e.g.
GDP) at factor cost
• 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
• A method of computing NI that measures the income (wages [W], rents[R],
interest[I], and profits[P]) earned by all factors of production in producing final
goods and services in a given period.
GDP =W +R +I + P
• A summation all the factor incomes over a period of time is known as NI (e.g.
GDP) at factor cost
• 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
• A method of computing NI that measures the income (wages [W], rents[R],
interest[I], and profits[P]) earned by all factors of production in producing final
goods and services in a given period.
GDP =W +R +I + P
• A summation all the factor incomes over a period of time is known as NI (e.g.
GDP) at factor cost
• 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

20. Expenditure Approach
• This method focuses on goods and services produced within the country during
one year.
• GDP by expenditure method includes:
 (1) Consumer expenditure on services and durable and non-durable goods (C),
 (2) Investment in fixed capital such as residential and non-residential building, machinery, and
inventories (I),
 (3) Government expenditure on final goods and services (G),
 (4) Export of goods and services produced by the people of country (X),
 (5) Less imports (M). That part of consumption, investment and government expenditure which is
spent on imports is subtracted from GDP. Similarly, any imported component, such as raw
materials, which is used in the manufacture of export goods, is also excluded.
 Thus GDP by expenditure method at market prices
GDP= C+ I + G + (X – M),
• where (X-M) is net export which can be positive or negative.
• This method focuses on goods and services produced within the country during
one year.
• GDP by expenditure method includes:
 (1) Consumer expenditure on services and durable and non-durable goods (C),
 (2) Investment in fixed capital such as residential and non-residential building, machinery, and
inventories (I),
 (3) Government expenditure on final goods and services (G),
 (4) Export of goods and services produced by the people of country (X),
 (5) Less imports (M). That part of consumption, investment and government expenditure which is
spent on imports is subtracted from GDP. Similarly, any imported component, such as raw
materials, which is used in the manufacture of export goods, is also excluded.
 Thus GDP by expenditure method at market prices
GDP= C+ I + G + (X – M),
• where (X-M) is net export which can be positive or negative.
• This method focuses on goods and services produced within the country during
one year.
• GDP by expenditure method includes:
 (1) Consumer expenditure on services and durable and non-durable goods (C),
 (2) Investment in fixed capital such as residential and non-residential building, machinery, and
inventories (I),
 (3) Government expenditure on final goods and services (G),
 (4) Export of goods and services produced by the people of country (X),
 (5) Less imports (M). That part of consumption, investment and government expenditure which is
spent on imports is subtracted from GDP. Similarly, any imported component, such as raw
materials, which is used in the manufacture of export goods, is also excluded.
 Thus GDP by expenditure method at market prices
GDP= C+ I + G + (X – M),
• where (X-M) is net export which can be positive or negative.
Expenditure Approach
• This method focuses on goods and services produced within the country during
one year.
• GDP by expenditure method includes:
 (1) Consumer expenditure on services and durable and non-durable goods (C),
 (2) Investment in fixed capital such as residential and non-residential building, machinery, and
inventories (I),
 (3) Government expenditure on final goods and services (G),
 (4) Export of goods and services produced by the people of country (X),
 (5) Less imports (M). That part of consumption, investment and government expenditure which is
spent on imports is subtracted from GDP. Similarly, any imported component, such as raw
materials, which is used in the manufacture of export goods, is also excluded.
 Thus GDP by expenditure method at market prices
GDP= C+ I + G + (X – M),
• where (X-M) is net export which can be positive or negative.
• This method focuses on goods and services produced within the country during
one year.
• GDP by expenditure method includes:
 (1) Consumer expenditure on services and durable and non-durable goods (C),
 (2) Investment in fixed capital such as residential and non-residential building, machinery, and
inventories (I),
 (3) Government expenditure on final goods and services (G),
 (4) Export of goods and services produced by the people of country (X),
 (5) Less imports (M). That part of consumption, investment and government expenditure which is
spent on imports is subtracted from GDP. Similarly, any imported component, such as raw
materials, which is used in the manufacture of export goods, is also excluded.
 Thus GDP by expenditure method at market prices
GDP= C+ I + G + (X – M),
• where (X-M) is net export which can be positive or negative.
• This method focuses on goods and services produced within the country during
one year.
• GDP by expenditure method includes:
 (1) Consumer expenditure on services and durable and non-durable goods (C),
 (2) Investment in fixed capital such as residential and non-residential building, machinery, and
inventories (I),
 (3) Government expenditure on final goods and services (G),
 (4) Export of goods and services produced by the people of country (X),
 (5) Less imports (M). That part of consumption, investment and government expenditure which is
spent on imports is subtracted from GDP. Similarly, any imported component, such as raw
materials, which is used in the manufacture of export goods, is also excluded.
 Thus GDP by expenditure method at market prices
GDP= C+ I + G + (X – M),
• where (X-M) is net export which can be positive or negative.

21. Problems of Estimation of National Income
• Conceptual difficulties
• Overlapping of occupations
• Difficulty in value estimation
• Non- monetized sector
• Problems in Industrial sector
• Foreign Firm income.
• Inefficient data collection
• Illiteracy of masses
• Second hand sale
•Unaccounted Environmental cost
•Incomplete government records
•Problems in agricultural sector
•Inadequate statistical required information.
•Double counting and Transfer payment
problems
•Unpaid services (Household and Social Services
•Uncaptured Market (Black Money market)
•Non-applicability of a uniform formula
• Increase in the service sector
•Unaccounted Environmental cost
•Incomplete government records
•Problems in agricultural sector
•Inadequate statistical required information.
•Double counting and Transfer payment
problems
•Unpaid services (Household and Social Services
•Uncaptured Market (Black Money market)
•Non-applicability of a uniform formula
• Increase in the service sector
• Conceptual difficulties
• Overlapping of occupations
• Difficulty in value estimation
• Non- monetized sector
• Problems in Industrial sector
• Foreign Firm income.
• Inefficient data collection
• Illiteracy of masses
• Second hand sale
•Unaccounted Environmental cost
•Incomplete government records
•Problems in agricultural sector
•Inadequate statistical required information.
•Double counting and Transfer payment
problems
•Unpaid services (Household and Social Services
•Uncaptured Market (Black Money market)
•Non-applicability of a uniform formula
• Increase in the service sector
•Unaccounted Environmental cost
•Incomplete government records
•Problems in agricultural sector
•Inadequate statistical required information.
•Double counting and Transfer payment
problems
•Unpaid services (Household and Social Services
•Uncaptured Market (Black Money market)
•Non-applicability of a uniform formula
• Increase in the service sector
• Conceptual difficulties
• Overlapping of occupations
• Difficulty in value estimation
• Non- monetized sector
• Problems in Industrial sector
• Foreign Firm income.
• Inefficient data collection
• Illiteracy of masses
• Second hand sale
•Unaccounted Environmental cost
•Incomplete government records
•Problems in agricultural sector
•Inadequate statistical required information.
•Double counting and Transfer payment
problems
•Unpaid services (Household and Social Services
•Uncaptured Market (Black Money market)
•Non-applicability of a uniform formula
• Increase in the service sector
•Unaccounted Environmental cost
•Incomplete government records
•Problems in agricultural sector
•Inadequate statistical required information.
•Double counting and Transfer payment
problems
•Unpaid services (Household and Social Services
•Uncaptured Market (Black Money market)
•Non-applicability of a uniform formula
• Increase in the service sector
Problems of Estimation of National Income
•Unaccounted Environmental cost
•Incomplete government records
•Problems in agricultural sector
•Inadequate statistical required information.
•Double counting and Transfer payment
problems
•Unpaid services (Household and Social Services
•Uncaptured Market (Black Money market)
•Non-applicability of a uniform formula
• Increase in the service sector
•Unaccounted Environmental cost
•Incomplete government records
•Problems in agricultural sector
•Inadequate statistical required information.
•Double counting and Transfer payment
problems
•Unpaid services (Household and Social Services
•Uncaptured Market (Black Money market)
•Non-applicability of a uniform formula
• Increase in the service sector
•Unaccounted Environmental cost
•Incomplete government records
•Problems in agricultural sector
•Inadequate statistical required information.
•Double counting and Transfer payment
problems
•Unpaid services (Household and Social Services
•Uncaptured Market (Black Money market)
•Non-applicability of a uniform formula
• Increase in the service sector
•Unaccounted Environmental cost
•Incomplete government records
•Problems in agricultural sector
•Inadequate statistical required information.
•Double counting and Transfer payment
problems
•Unpaid services (Household and Social Services
•Uncaptured Market (Black Money market)
•Non-applicability of a uniform formula
• Increase in the service sector
•Unaccounted Environmental cost
•Incomplete government records
•Problems in agricultural sector
•Inadequate statistical required information.
•Double counting and Transfer payment
problems
•Unpaid services (Household and Social Services
•Uncaptured Market (Black Money market)
•Non-applicability of a uniform formula
• Increase in the service sector
•Unaccounted Environmental cost
•Incomplete government records
•Problems in agricultural sector
•Inadequate statistical required information.
•Double counting and Transfer payment
problems
•Unpaid services (Household and Social Services
•Uncaptured Market (Black Money market)
•Non-applicability of a uniform formula
• Increase in the service sector

22. Importance of National Income studies
Importance of national income studies are :
1. Economic Policy: National income estimates are the most comprehensive measures of aggregate
economic activity in an economy. It is through such estimates that we know the aggregate yield of
the economy and can lay down future economic policy for development.
2. Economic Planning National income statistics are the most important tools for long-term and short-
term economic planning. A country cannot possibly frame a plan without having a prior knowledge
of the trends in national income. The Planning Commission in India also kept in view the national
income estimates before formulating the five-year plans.
3. Economy’s Structure: National income statistics enable us to have clear idea about the structure of
the economy. It enables us to know the relative importance of the various sectors of the economy
and their contribution towards national income. From these studies we learn how income is
produced, how it is distributed, how much is spent, saved or taxed
4 . Inflationary and Deflationary Gaps : National income and national product figures enable us to
have an idea of the inflationary and deflationary gaps. For accurate and timely anti- inflationary
and deflationary policies, we need regular estimates of national income.
5. Budgetary Policies : Modern governments try to prepare their budgets within the framework of
national income data and try to formulate anti-cyclical policies according to the facts revealed by
the national income estimates. Even the taxation and borrowing policies are so framed as to avoid
fluctuations in national income.
Importance of national income studies are :
1. Economic Policy: National income estimates are the most comprehensive measures of aggregate
economic activity in an economy. It is through such estimates that we know the aggregate yield of
the economy and can lay down future economic policy for development.
2. Economic Planning National income statistics are the most important tools for long-term and short-
term economic planning. A country cannot possibly frame a plan without having a prior knowledge
of the trends in national income. The Planning Commission in India also kept in view the national
income estimates before formulating the five-year plans.
3. Economy’s Structure: National income statistics enable us to have clear idea about the structure of
the economy. It enables us to know the relative importance of the various sectors of the economy
and their contribution towards national income. From these studies we learn how income is
produced, how it is distributed, how much is spent, saved or taxed
4 . Inflationary and Deflationary Gaps : National income and national product figures enable us to
have an idea of the inflationary and deflationary gaps. For accurate and timely anti- inflationary
and deflationary policies, we need regular estimates of national income.
5. Budgetary Policies : Modern governments try to prepare their budgets within the framework of
national income data and try to formulate anti-cyclical policies according to the facts revealed by
the national income estimates. Even the taxation and borrowing policies are so framed as to avoid
fluctuations in national income.
Importance of national income studies are :
1. Economic Policy: National income estimates are the most comprehensive measures of aggregate
economic activity in an economy. It is through such estimates that we know the aggregate yield of
the economy and can lay down future economic policy for development.
2. Economic Planning National income statistics are the most important tools for long-term and short-
term economic planning. A country cannot possibly frame a plan without having a prior knowledge
of the trends in national income. The Planning Commission in India also kept in view the national
income estimates before formulating the five-year plans.
3. Economy’s Structure: National income statistics enable us to have clear idea about the structure of
the economy. It enables us to know the relative importance of the various sectors of the economy
and their contribution towards national income. From these studies we learn how income is
produced, how it is distributed, how much is spent, saved or taxed
4 . Inflationary and Deflationary Gaps : National income and national product figures enable us to
have an idea of the inflationary and deflationary gaps. For accurate and timely anti- inflationary
and deflationary policies, we need regular estimates of national income.
5. Budgetary Policies : Modern governments try to prepare their budgets within the framework of
national income data and try to formulate anti-cyclical policies according to the facts revealed by
the national income estimates. Even the taxation and borrowing policies are so framed as to avoid
fluctuations in national income.
Importance of National Income studies
Importance of national income studies are :
1. Economic Policy: National income estimates are the most comprehensive measures of aggregate
economic activity in an economy. It is through such estimates that we know the aggregate yield of
the economy and can lay down future economic policy for development.
2. Economic Planning National income statistics are the most important tools for long-term and short-
term economic planning. A country cannot possibly frame a plan without having a prior knowledge
of the trends in national income. The Planning Commission in India also kept in view the national
income estimates before formulating the five-year plans.
3. Economy’s Structure: National income statistics enable us to have clear idea about the structure of
the economy. It enables us to know the relative importance of the various sectors of the economy
and their contribution towards national income. From these studies we learn how income is
produced, how it is distributed, how much is spent, saved or taxed
4 . Inflationary and Deflationary Gaps : National income and national product figures enable us to
have an idea of the inflationary and deflationary gaps. For accurate and timely anti- inflationary
and deflationary policies, we need regular estimates of national income.
5. Budgetary Policies : Modern governments try to prepare their budgets within the framework of
national income data and try to formulate anti-cyclical policies according to the facts revealed by
the national income estimates. Even the taxation and borrowing policies are so framed as to avoid
fluctuations in national income.
Importance of national income studies are :
1. Economic Policy: National income estimates are the most comprehensive measures of aggregate
economic activity in an economy. It is through such estimates that we know the aggregate yield of
the economy and can lay down future economic policy for development.
2. Economic Planning National income statistics are the most important tools for long-term and short-
term economic planning. A country cannot possibly frame a plan without having a prior knowledge
of the trends in national income. The Planning Commission in India also kept in view the national
income estimates before formulating the five-year plans.
3. Economy’s Structure: National income statistics enable us to have clear idea about the structure of
the economy. It enables us to know the relative importance of the various sectors of the economy
and their contribution towards national income. From these studies we learn how income is
produced, how it is distributed, how much is spent, saved or taxed
4 . Inflationary and Deflationary Gaps : National income and national product figures enable us to
have an idea of the inflationary and deflationary gaps. For accurate and timely anti- inflationary
and deflationary policies, we need regular estimates of national income.
5. Budgetary Policies : Modern governments try to prepare their budgets within the framework of
national income data and try to formulate anti-cyclical policies according to the facts revealed by
the national income estimates. Even the taxation and borrowing policies are so framed as to avoid
fluctuations in national income.
Importance of national income studies are :
1. Economic Policy: National income estimates are the most comprehensive measures of aggregate
economic activity in an economy. It is through such estimates that we know the aggregate yield of
the economy and can lay down future economic policy for development.
2. Economic Planning National income statistics are the most important tools for long-term and short-
term economic planning. A country cannot possibly frame a plan without having a prior knowledge
of the trends in national income. The Planning Commission in India also kept in view the national
income estimates before formulating the five-year plans.
3. Economy’s Structure: National income statistics enable us to have clear idea about the structure of
the economy. It enables us to know the relative importance of the various sectors of the economy
and their contribution towards national income. From these studies we learn how income is
produced, how it is distributed, how much is spent, saved or taxed
4 . Inflationary and Deflationary Gaps : National income and national product figures enable us to
have an idea of the inflationary and deflationary gaps. For accurate and timely anti- inflationary
and deflationary policies, we need regular estimates of national income.
5. Budgetary Policies : Modern governments try to prepare their budgets within the framework of
national income data and try to formulate anti-cyclical policies according to the facts revealed by
the national income estimates. Even the taxation and borrowing policies are so framed as to avoid
fluctuations in national income.

23. References
• Shah, M. A. An Analytical Study on Financial Performance of Chhattisgarh Rajya Sahakari
Maryadit Bank.
• Shah, M. A. Role of Information and Communication Technology (ICT) on Financial
Inclusion. COMPUTER APPLICATION IN EDUCATION & RESEARCH FOR SCIENCE AND
TECHNOLOGY, 11.
• Shah, M. A. (2015). Accelerating Public Private Partnership in Agricultural Storage
Infrastructure in India. Global Journal of Management And Business Research.
• Shah, M. A. An Analytical Study on Financial Performance of Chhattisgarh Rajya Sahakari
Maryadit Bank.
• Shah, M. A. Role of Information and Communication Technology (ICT) on Financial
Inclusion. COMPUTER APPLICATION IN EDUCATION & RESEARCH FOR SCIENCE AND
TECHNOLOGY, 11.
• Shah, M. A. (2015). Accelerating Public Private Partnership in Agricultural Storage
Infrastructure in India. Global Journal of Management And Business Research.
References
• Shah, M. A. An Analytical Study on Financial Performance of Chhattisgarh Rajya Sahakari
Maryadit Bank.
• Shah, M. A. Role of Information and Communication Technology (ICT) on Financial
Inclusion. COMPUTER APPLICATION IN EDUCATION & RESEARCH FOR SCIENCE AND
TECHNOLOGY, 11.
• Shah, M. A. (2015). Accelerating Public Private Partnership in Agricultural Storage
Infrastructure in India. Global Journal of Management And Business Research.
• Shah, M. A. An Analytical Study on Financial Performance of Chhattisgarh Rajya Sahakari
Maryadit Bank.
• Shah, M. A. Role of Information and Communication Technology (ICT) on Financial
Inclusion. COMPUTER APPLICATION IN EDUCATION & RESEARCH FOR SCIENCE AND
TECHNOLOGY, 11.
• Shah, M. A. (2015). Accelerating Public Private Partnership in Agricultural Storage
Infrastructure in India. Global Journal of Management And Business Research.