Subject: Health economic Topic: National Income BPH 3rd year

1. NATIONAL INCOME
Heath Economic
BPH 3rd year

2. CONCEPT
• The total market value of all final goods and
services produced in the economy in a given
year.
• National Income= Aggregate money value
of National Product.
• A country with larger national income is called
a prosperous country.

3. DEF- NATIONAL INCOME
• According to Gardner Ackley:-
– “The macro-economic concept of national income
is the sum of all individual incomes. It is the sum
of wages, salaries, comissions, bonuses and other
forms of employee earnings, net income from
rental and royalties, interest, income and profit.”

4. SOME POINTS
• A sum of goods and services produced during a
year in a country is national income.
• The income earned by the citizens on capital
invested abroad should be included in national
income.
• Only that income should be included which can
be measured in terms of money. Hence, if a
woman renders services for her husband, it
cannot be included in national income. Because,
it has no money value.

5. DIFFERENT CONCEPTS OF
NATIONAL INCOME

6. GROSS DOMESTIC PRODUCT (GDP)
• It means the sum of goods and services
produced in a country during a year.
• GDP is confined only to the goods and services
produced within the boundary of a country.
• It does not take into account the net income
from abroad.

7. GROSS NATIONAL PRODUCT
(GNP)
• It is broader than GDP and widely used.
• It is the sum total of final goods and services
produced during a particular time, normally a year.
• The money value of goods and services produced is
called gross national income (GNI).
• GNP= GDP+ (X-M)
• Where, X-M means net income residents receive from abroad or
exports- imports.

8. Contd…
• Only the money value of currently produced
final goods and services should be calculated.
• The use of term ‘total’ in national product
means that the depreciation of fixed assets
are not deducted while calculating GNP.
• GNP also includes GDP but it crosses national
boundary.

9. RELATIONSHIP BETWEEN GDP AND GNP
• GNP= GDP + (Export – Import)
• GDP= GNP – (Export – Import)
• GDP= GNP
– (Only in closed economy having no transaction
with foreign countries, the exports and imports
are nil.)

10. NET NATIONAL PRODUCT
(NNP)
 NNP is the market value of all final goods and
services after providing that for depreciation.
 Depreciation is the wear and tear on the
economy’s stock of equipment and structures.
It causes fall in the value of capital.
 NNP= GNP- Depreciation

11. Contd…
 It is considered better than GNP as it considers
the depreciation of capital assets and provides
information on the net increase of total
product in the country.
 But, it is difficult to determine the appropriate
rate of depreciation of machine and
equipments.

12. NATIONAL INCOME AT FACTOR COST (NI)
• It is the sum of the income caused by all
factors of production in the form of rent,
interest, profit, wages and income of self
employed people etc.
• NI= NNP+ Subsidies- Indirect taxes
• The indirect taxes are not available to the
factors of production. Hence, they should be
deducted from NNP.
• The subsidies are available to the factor of
production.

13. PERSONAL INCOME
• It refers to the sum of all incomes actually
received by the individuals or households
before deducting personal taxes but after
deducting social security contribution.
• PI= NI- Corporate Income tax-Undisturbed
Corporate profit- Social security contribution+
Transfer payments
• Transfer payments include old age pension,
unemployment allowance or relief payment
are received income not earned income.

14. Contd…
• The concept of personal income is important
as it helps to estimate the purchasing power
of people and measure their welfare.
• But, it does not give clear information about
the real amount available to the households
for spending and saving.

15. DISPOSABLE INCOME (DI)
• It is that part of personal income which is
actually available to individuals and
households for consumption and saving.
• They cannot spend all the personal income
received by them.
• The income left after paying direct taxes from
personal income is called personal income.

16. Contd…
• DI= Personal income- direct taxes
• Generally people save the amount left after
consumption. Hence,
DI= Consumption+ Saving
• By comparing disposable income with
personal income, the monetary burden of
direct taxes can be found out.

17. PER CAPITA INCOME
• It is the income per person of the country in a
year.
• It can be obtained as:
–Per capita income= NI/ Total population

18. COMPUTATION OF NATIONAL INCOME

19. • There are three main methods of measuring
national income.
Product method
Income method
Expenditure method
• Any of the method can be used on availability
of data and objective of measurement.

20. PRODUCT METHOD
• National income is measured from product
side.
• The economy has different sectors such as
agriculture, mining, manufacturing, services.
• In this method, economy is divided into above
sectors and GDP is calculated and GNP, NI etc
are calculated accordingly.

21. CONTD…
• There is possibility of double counting while
measuring national income by this method.
• This problem may arise in case of
intermediate goods or the goods used as raw
materials.
• It should be avoided to find the accurate
situation of national income. Therefore, two
methods have been suggested by economists.

22. FINAL PRODUCT METHOD
• Only the value of finally consumed goods
should be calculated in national income.
• The gross product is estimated by adding the
value of all final goods and services produced
in above mentioned sectors.

23. VALUE ADDED METHOD
• According to this method, national income is the
sum total of value added by different producing
units of a country in their production process.
• The difference between the value of output and
the value of input is called value added.
• In this method, only the value of the final
product added in each stage of production till it
reaches in the hands of consumers is counted.
• The cost of intermediate product or the goods
not produced in that stage should be deducted
from total value created in that stage.

24. CONTD…
• In brief, the cost of inputs should be deducted
from the value of the product.
• Hence, product method helps us to know the
origin of national income.
• Therefore, it is also called “National income by
Industrial origin.”

25. Computation of GNP by Product
Method, 1996/97.
Sectors Net Contribution to National Income
1. Agriculture
2. Industry
3. Manufacturing Industry
4. Services
Gross Domestic Product (GDP)
Net income from abroad
Gross National Product (GNP)
Depreciation fund or capital
consumption allowance
Net National Product (NNP)
2700
684
63
864
4311
-105
4206
-455
3751
(Rs. In crore)

26. INCOME METHOD
• It measures national income from distribution
side.
• National income can be estimated as the sum
of income of factors of production.
• Thus, it is calculated by adding on the rent of
land, wages and salaries of employees,
interest or capital, profits and income of the
self employed people.

27. CONTD…
• This method of measuring NI includes the
distribution of national income among
different income groups such as landlords,
landowners, capital, workers, capitalist,
untapreniers etc.
• So, this is also called NI by distributive shares.

28. CONTD…
• In order to have correct estimate of NI based
on this method, illegal income from
smuggling, black marketing, income of sales
from second hand goods, transfer payments
etc should be excluded.

29. Computation of GNP by Income method, 1996/97.
Income Heading Amount of Income
1. Wages, salary, allowance 2000
2. Rent 300
3. Interest 300
4. Corporate profit (profit tax+
dividend+ undistributed profit)
1000
5. Income from self-employment 200
6. Indirect taxes 56
7. Depreciation or Capital consumption
allowance
455
Gross Domestic Income (GDI) 4311
Net Income from abroad -105
Gross National Income (GNI) 4206
Depreciation or capital consumption
allowance
-455
Net National Income (NNI) 3751
Rs. In crore

30. EXPENDITURE METHOD
• This method measures national income by
adding of all the expenditure made by
individuals and household, businessman or
producers and government of the country
during the year.
• Income can be spent either on consumption
of goods or on investment goods.

31. CONTD…
• From this method GNP can be calculated by
adding the following:
Personal Consumption Expenditure- all the
expenditures made by individual or households on
goods and services for direct consumption.
Gross Domestic Private Investment- all the
expenditure made by individual on purchasing
capital goods or replacing it.
Net Foreign Investment- It is the difference
between export and import.
Government Expenditure- It includes the
government expenditure on capital goods or
national security and defence.

32. CONTD…
• In order to have correct estimate of national
income based on this method, expenditure on
second hand goods, purchase of old shares
and bonds, transfer payments should be
excluded.

33. Computation of GNP by expenditure
Method, 1996/97
Expenditure Method Expenditure Method
1. Private consumption expenditure 2000
2. Gross Domestic private expenditure 1000
3. Government expenditure on
consumption and investment
1311
Gross Domestic Expenditures 4311
Net Income from abroad -105
Gross National expenditure (GNI) 4206
Depreciation or capital consumption
allowance
-455
Net National Expenditure (NNI) 3751
Rs. In crore