The document discusses national income and GDP. It defines national income as the total value of all final goods and services produced in an economy in a year. National income can be measured using the production, income, and expenditure methods. GDP is a measure of the total value of final goods and services produced domestically in a year. It includes consumption, investment, government spending, and net exports. While GDP indicates economic activity and growth, it does not account for non-market activities or capture social welfare.

1. NATIONAL INCOME
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2. National Income
2

3. Group Members
Saima Pervaiz
Mehak Tanveer
Rida Aslam
Shabnoor Javed
Mishal Mary
Faryal Iqbal
3

4. Content:
National income
Methods to measure National Income
Concept of GDP and GNP as National Income
Flow Diagram
Importance of National Income
Advantages and Disadvantaged of GDP
4

5. National Income
The sum total of the values of all goods and services
produced in a year
It is the money value of the flow of goods and services
available in an economy in a year
5

6. National Income
National Income refers to-
The income of a country
to a specified period of time, say a year
includes all types of goods and services
which have an exchange value
counting each one of them only once
6

7. NI – Methods of computation
Three methods to measure the national income
They are-
Production method or Census method
Income method
Expenditure method
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8. Production method
In this method
The total products produced in the economy are
calculated for the year and the value is added without
double counting
The economy is classified into sectors like
Agricultural, industrial, fisheries, forest, direct
services and foreign transactions etc
In each sector, we can find the value of final goods
and services
8

9. Production method
In the international transactions, net foreign income
is calculated by subtracting the total imports from
the total exports and added to the national income
The results of these sectors, when combined, gives
the national income or national product
The census or product method can be expressed
through the formula
9

10. Production method
 O = C + I
Where O stands for output,
C stands for consumption of goods
I stands for investment goods
10

11. Income Method
According to this method
Net incomes of individuals and business houses
during a year are added to know the national income
Only those incomes earned and received for
producing goods and for rendering services are to be
counted
Transfer payments such as old age pensions , widow
pensions and unemployment benefits etc should not
be counted as these are the incomes received without
contributing to the production
11

12. Income Method
People get incomes in the form of
Rents, wages or salaries, interest and profit
The formula is
 Y = C + S
Here Y stands for Total Income
C stands for consumption and S stands for Savings
12

13. Expenditure method
One man’s income is another man’s expenditure
Therefore national income can be arrived at by
adding the total expenditure of individual and
business firms during a year
Expenditure or outlay on final products takes place in
three ways
13

14. Expenditure method
Expenditure or outlay on final products takes place in
three ways
Expenditure by consumers on goods and services
Expenditure by entrepreneurs on capital or
investment goods
Expenditure by government on consumption and
capital goods
14

15. Expenditure method
The formula for this method is
 Y = C + I
Here Y stands for total expenditure
C stands for consumption expenditure
 I stands for investment expenditure
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16. National Income concepts
The following are the concepts of national income
Gross National Product – GNP
Net National Product – NNP
Personal Income – PI
Per capita Income – PCI
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17. National Income concepts
Gross National Product
National Income is the sum total of values of all
goods and services produced during a year
The money value of this total output is known as
Gross National Product – GNP
17

19. GDP(Gross Domestic Product)
Market value of finally prepared goods and services
Within a country
Restricted to a specific time period (usually of one
year)
Indicator of the progress of a country
Commonly used to calculate national income
19

20. The Components of GDP
YYYY ==== CCCC ++++ IIII ++++ GGGG ++++ NNNNXXXX
Government
Government
purchases of goods
purchases of goods
and services
and services
Total demand
for domestic
output (GDP)
Total demand
for domestic
output (GDP)
is composed
is composed
of
of
Consumption
spending by
households
Consumption
spending by
households
Investment
spending by
businesses and
households
Investment
spending by
businesses and
households Net exports
Net exports
or net foreign
demand
or net foreign
demand

21. Components of GDP
(1)Consumption (c)
- Durable goods
- Non-durable goods
- Services
(2) Investment (I)
(3)Government spending (G)
(4)Net exports (X-M)

22. (1)Consumption (c)
 “C” is private consumption the economy.
 Consumption is spending by households on
goods & services excluding purchase of
new housing.
 Include - food
- rent
- medical expenses
-clothing

23. (1) Durable goods
This items have larger
life span.
Consider similar to a
consumer investment
8% GDP
Its components
- autos(3.6%)
- furniture(3%)
Ovens

24. Examples of
durable goods
- Refrigerators
- Washing
machine
-Toster
- Ovens & etc.

25. (2) Non –durable
goods
Non durable items
have shorter life span.
 20% GDP
Its components
-food(10%)
-clothing(2.7%)
-fuel(2.4%)

26. Examples of
Non-durable goods
-Groceries
-News paper
-Foods
-Cloths

27. (3)Services:
Fastest growing component
of consumer purchases has
been the area of services
40% GDP
 components
-real estate(10%)
-healthcare(12%)

28. Examples of services
-Medical treatment
-insurance
-banking

29. (2) Investment (I)
“I” is defined as business
investment capital including
the purchase of new
housing.
Ex. Investment in new
mine company……..

30. (3) Government spending (G)
“G” is the sum of expenditure
on final goods and services.
 in concerned
-salaries
-weapons for military
-etc.

31. Examples of government
spending
Weapons
Salaries
Deffence
& Etc.

32. (4) Net exports (X-M=XM)
(x-m) is gross exports.
Incleding goods and
services.

35. GGDDPP mmeeaassuurreess aallll ffiinnaall ggooooddss//sseerrvviicceess
pprroodduucceedd bbyy wwoorrkkeerrss aanndd ccaappiittaall ooff aa
llooccaall ssttaattee ,, rreeggaarrddlleessss ooff oowwnneerrsshhiipp..
[[DDoommeessttiiccaallllyy llooccaatteedd rreessoouurrcceess]]
FFiinnaall ggooooddss aarree ggooooddss rreeaaddyy ffoorr ccoonnssuummppttiioonn..

36. 11.. IInntteerrmmeeddiiaattee GGooooddss –– ccoommppoonneennttss ooff tthhee ffiinnaall ggoooodd..
AA.. AA ccoommppaannyy bbuuyyss bbaatttteerriieess oorr ttiirreess ffoorr iittss ccaarrss..
BB.. KKFFCC bbuuyyss cchhiicckkeennss ttoo eevveennttuuaallllyy sseellll ttoo ccuussttoommeerrss..

37. 2. 2nd Hand Sales
–– no current production.
A. 1957 Chevy bought in 2007
SSaalleessmmaann
[It has not been produced again in 1963 & would not count.]
The salesman is doing productive work. His commission would count.
B. Boots produced in 1980 are bought in a Thrift Store in 07.
They also have not been produced again.
Salesman’’s commission would count.
You are buying his services.
SShhooee ssaalleessmmaann
5577 CChheevvyy

38. 3. Purely Financial TTrraannssaaccttiioonnss – stocks, bonds, CDs.
There is nnoo ccuurrrreenntt pprroodduuccttiioonn.
Ex: If 110000 sshhaarreess ooff DDeellll ssttoocckk is bought
BBuuyyiinngg ssttoocckk iiss nnoott bbuuyyiinngg aa pprroodduucctt bbuutt bbuuyyiinngg
oowwnneerrsshhiipp ooff tthhee ffiirrmm.. BBuuyyiinngg bboonnddss iiss making a loan..
II’’mm nnoott bbuuyyiinngg aa DDeellll ccoommppuutteerr
bbuutt ppaarrtt oowwnneerrsshhiipp ooff DDeellll..
EExxcchhaannggiinngg oonnee ffiinnaanncciiaall aasssseett ffoorr aannootthheerr
[[sswwaappppiinngg bbiittss ooff ppaappeerr]]

39. 44.. PPuubblliicc TTrraannssffeerr PPaayymmeennttss ––wweellffaarree,, uunneemmppllooyymmeenntt,, ssoocciiaall
sseeccuurriittyy. [There is nnoo ccoonnttrriibbuuttiioonn ttoo ffiinnaall pprroodduuccttiioonn]
“Now that I’ve gotten my
welfare check, I can get an
iPhone”
Also, Private Transfer Payments, like your
parents giving you $250 cash for Christmas,
or - $100 for making an “A” in economics.
[Just transferring funds from one private
individual to another private individual]

40. Illegal business activity, because it goes unreported, also does
not count. Making up 11//33 of the ““uunnddeerrggrroouunndd eeccoonnoommyy,,”” it
includes murder for hire, gambling, drugs, prostitution, and
money laundering.
Making money illegally (drug money)
and making it look like it was legally
earned (like buying a laundry mat
or car wash that deal in cash) and
report it as legally earned.
“I’m getting $1,000 to kill
you, but at least it
will not count in GDP.”
Money Laundering

42. Definition
Gross National Product (GNP):
It is the combined value of all the
final goods and services produced in a country during
an accounting year, including net factor income from
foreign countries
42

43. How To Calculate
GNP = GDP + Net factor income from abroad
Net factor income: it difference between income
earned in foreign countries by residents of a country
and income earned by foreign nationals domestically.
43

44. What does GNP indicate?
GNP helps to measure the contribution of residents
of a country to the flow of goods and services within
and outside the national territory.
44

45. Double Accounting
A term used to describe the problematic situation that
occurs when the costs of intermediate goods used to
produce a final good are included in the calculation of
GNP. But the price of the final good already includes the
price of intermediate goods.so this way we are counting
price of intermediate goods twice, this situation is called
double accounting.
45

52. GNP as a inductor
GNP is not a good inductor due to its limitation.
52

59. The Circular-Flow of national Income
Markets for Goods and Services
 Firms sell
 Households buy
Markets for Factors of Production
 Households sell
 Firms buy

60. 60
60
Hosehold Firms
Factors of Production
Factoral Income (Y)
= 7000
Savings (S)
= 2000
Consumption (C)
= 5000
Goods and Servies
Investment (I)
= 2000

61. The Circular-Flow Diagram
Factors of Production
 Inputs used to produce goods and services
 Land, labor, and capital

62. Importance of national income
It indicates the prosperity of a nation. Growth in
national income indicates economic prosperity
It indicates the standard of living of people of a
country
It indicates the per capita income with which we can
compare the levels of development of all the countries
Countries can be classified as ‘developed’ and
‘developing’ and ‘under developed’ based on their per
capita income only
62

63. Importance of national income
NI estimates are very helpful to the Finance Minister.
It guides him to make proper and right decisions in
regard to taxation and budgets
It is useful to compare the prosperity of a country at
different times
It provides an instrument of economic planning
It indicates the trends of inflation and deflation.
Proper corrective action can be taken against them
63

64. Importance of national income
It helps to know the progress of various sectors in the
economy. Imbalanced growth, if any, can be solved
It helps in forecasting the economic future and
preplanning is possible
It indicates the economic status of a country among
the nations of the world
64

65. Advantages of national income
Gross Domestic Product (GDP) is an economic
measure of a nation's total income and output for a
given time period (usually a year). Economists use
GDP to measure the relative wealth and prosperity of
different nations, as well as to measure the overall
growth or decline of a nation's economy
The most common way to measure GDP is the
expenditure approach

66. Benefits of Gdp
Total domestic consumption:
 This is the total amount spent on domestically
produced final goods and services. Final goods are
items that will not be resold or used in production
within the next year — milk, cars, bow ties, and so on.

67. Benefits of gdp
2 Total domestic investment expenditures:
 This measurement includes not only investments in
stocks and bonds, but also investments in equipment —
such as bulldozers, computer servers, and commercial
buildings — that will be useful over a long period of time.
It also includes inventory goods — final goods waiting to
be sold that a company still has on hand.
Government expenditures: This includes everything from
paying military salaries to building roads and maintaining
monuments, but does not include welfare and social
security payments

68. Benefits of gdp
.3 Net exports:
 Net exports are the total of goods and services
produced domestically and sold to foreigners minus
goods and services produced by foreigners but sold
domestically (imports).
Using GDP as a measure of a nation's economy makes
sense because it's essentially a measure of how much
buying power a nation has over a given time period.
GDP is also used as an indicator of a nation's overall
standard of living because, generally, a nation's
standard of living increases as GDP increases.

69. Disadvantages of gdp
4 GDP doesn't count unpaid volunteer work:
GDP doesn't take into account work that people do
for free, from an afternoon spent picking up litter on
the roadside to the millions of man-hours spent on
free and open source software (such as Linux). In fact,
volunteer work can actually lower GDP when
volunteers do work that might otherwise have gone to
a paid employee or contractor

70. Disadvantages of gdp
Disasters can raise GDP:
Wars require soldiers, oil spills require cleanup, and
natural disasters require health workers, builders, and
all manner of helping hands. Rebuilding after a
disaster or war can greatly increase economic activity
and boost GDP.

71. Disadvantages of gdp
GDP doesn't account for quality of goods:
 Consumers may buy cheap, low-quality, short-lived
products repeatedly instead of buying more expensive,
longer-lasting goods. Over time, consumers could spend
more replacing cheap goods than they would have if they
had bought higher-quality goods in the first place, and
GDP would grow as a result of waste and inefficiency.
Although economists are constantly working on other
ways to measure an economy, GDP is still the best
indicator of a nation's overall economic health, in spite of
its shortcomings