2. MEANING
National income is the sum of factor incomes earned by normal
residents of a country in the form of rent, wages, interest and profit
in an accounting year
S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A
3. National income at current price: if goods and services produced in
ayear are valued at current prices ,i.e., prices prevailing in that
particular year, we get national income at current price (Nominal
National Income)
National income at constant price: If goods and services produced in
a year are valued at fixed prices i.e., prices of the base year.
S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A
4. DOMESTIC TERRITORY OF
A COUNTRY
Economic territory is the geographical territory administered by a
government within which persons, goods and capital circulate freely.
S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A
5. RESIDENT (NORMAL
RESIDENT)
A person or institution who ordinarily resides in a country and whose
centre of economic interest lies in that country.
S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A
6. INVESTMENT
Investment means addition to the stock of capital goods such as
buildings ,equipments or inventory that adds to the future productive
capacity of the economy
Gross investment
Net investment = Gross investment -Depreciation
S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A
7. Net product=Gross product – Depreciation
Net value added=Gross value added-Depreciation
Net Domestic capital formation=Gross domestic capital formation-Depreciation.
S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A
8. Factor cost: FC refers to all factors payments made by the producing
unit to the factors of production for renderning productive services
Market price: MC is the price at which a commodity is sold and
purchased in the market
Indirect Taxes; Taxes which are levied by the government on
production and sale of commodities are called IT
Subsidies: these are cash grants given by the government to the
enterprises to encourage production of certain commodities or to
promote exports or to sell goods at prices lower than the free market
prices
S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A
10. Net Factor income from Abroad (NFIA): income attributable to factor
services rendered by the normal residents of the country to the rest of
the world , less factor services rendered to them by the rest of the world.
Components:
Net compensation of employees
Net income from property and entrepreneurship
Net retained earning of resident companies abroad
S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A
11. Value of Output : Value of output is the market value of all the
goods and services produced by an enterprices during an accounting
year
Value of output = Q x P
Value of output = Sales + Change in stock
S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A
12. Value added : it refers to the adddition of value to the raw material
by a firm by virtue of its productive activities.
Value added = value of output –Intermediate consumption
Gross value added at MP = value of output –Intermediate
consumption
Net value added at MP=GVA at MP-Depreciation
Net Value added at FC=NVA at MP-NIT
Net value added at FC = Sum of factor incomes
S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A
13. SOURCES OF DEMOSTIC
INCOME
Copensation of employees : wage and salaries in cash ,
compensation in kind, employers contribution to social schemes
Operating surplus : OS is net value added at FC minus
compensation of employees (traditionally called wages)
Mixed income of self employed
S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A
14. Factor Payment Transfer Payment
It comprises rent,wages, interest
and profit
It comprises gifts, subsidies,
donations ,scholarships..
It is received in return for
rendering productive service
It is received without providing
any good or service in return
It is an earned income It is an unearned income
It is bilateral payment It is unilateral payment
It is included in National income It is not included in National
Income
S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A
15. THE CIRCULAR FLOW,
Goods
Other countries
Financial markets
Government
Firms (production)
Household
Factor services
Wages, rents, interest,
profits
Personal consumption
S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A
18. VALUE ADDED METHOD
1. FINAL PRODUCT APPROACH : GDP mp =P(Q) +P(S)
P= market price Q=quantity of goods S= quantity of services
2. VALUE ADDED APPROACH = NET VALUE ADDED AT FC=
GROSS OUTPUT –INTERMEDIATE CONSUMPTION –
DEPRECIATION - NIT
S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A
19. DOUBLE COUNTING
It means counting of the value of the same product more than
once.
This problem is perfectly solved by value added method.
According to this method ,instead of taking value of final
products ,value added by each firm at each stage of
production is included.
S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A
20. INCOME METHOD
The income method measures national income from the
side of payment made to the primary factors of production
in the form of rent, wages, interest and profit for their
productive services in an accounting year
S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A
22. ROYALITY
Which is amount receivable by a landlord for granting leasing
rights of sub soil assests and for use of patents ,copyrights
,etc ., is also included in the rent
S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A
23. INCOME OF THE GOVT.
SECTORS
Income from property and entrepreneurship accruing to
government administrative departments
Savings of non departmental enterprises
S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A
24. PRIVATE INCOME
Private income is the total of factor incomes and transfer incomes
received from all sources by private sectors within and outside the
country
Private income = income from domestic product accruing to private
sector + net factor income from abroad + all current transfers
including national debt interest
= national income – income from domestic product
accruing to government sector + transfer incomes
=personal income + corporate tax + undistributed
profit
S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A
25. PERSONAL INCOME
Personal income is the sum of earned income and transfer income
received by persons from all sources within and outside the country
Personal income = private icome – corporate tax – undistributed
profits
= national income – surplus of public sector –
corporate tax - udistributed profit + all types of transfer incomes
= domestic income – income from domestic
product accruing to govt. sector - corporate tax – undistributed
profit + NFIA + all types of transfer incomes
S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A
26. PERSONAL DISPOSABLE
INCOME
It is that part of personal income which is available to
the households for disposal as they like
Personal disposable income = personal income –
personal taxes – miscellaneous receipts of the govt.
S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A
29. EXPENDITURE METHOD
Expenditure method measures final
expenditure on Gross Domestic
Product at Market price during a period
of account
S.MADAN KUMAR M.A.,M.A.,B.E.d.,M.Phil.,M.B.A
