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NATIONAL
INCOME
PRESENTED BY:
Ravi Muchhal
Doon Business School
PGDM 2013-15
1
Ravi Muchhal (R) 2013-15 DBS
CONTeNT
1. Meaning of national income
2. Concept of national income
3. Methods of measuring national income
4. Income method
5. Value added method
6. Expenditure method
7. Comparison of three methods
8. Problems
2
Ravi Muchhal (R) 2013-15 DBS
MEANING OF NATIONAL INCOME
• National income or national product is defined
as the total market value of all the final goods
and services produced in an economy in a given
period of time.
• The money value of all goods and services
produced in a country during a year is called
national income.
• A country is high national income is said to be a
prosperous country.
3
Ravi Muchhal (R) 2013-15 DBS
NATIONAL INCOME
AGGREGATES
1 . GROSS=NET+DEP
2. NET=GROSS+DEP
1.NATIONAL=DOMESTIC+N
FI
2.DOMESTIC=NATIONAL-
NFIA
1.MP=FC+NIT
2.FC=MP-NIT
4
Ravi Muchhal (R) 2013-15 DBS
Concept of national income
• GDPFC = NDPFC +D
• GDPMP= GDPFC + N.I.T
• GNPMP= GDPMP+NFIA
• NDPFC= NNPFC- NFIA
• NNPMP= GDPMP -D
• NNPFC= NNPMP -N.I.T
5
Ravi Muchhal (R) 2013-15 DBS
METHODS OF MEASURING NATIONAL
INCOME
CIRCULAR
FLOW
INCOME
EXPENDITURE
VALUE
ADDED
6
Ravi Muchhal (R) 2013-15 DBS
INCOME METHOD
• This method approaches national income
from distribution side. In the other words ,
this method measures national income ath
the phase of distribution and appears as
income paid and or received by individuals
of the country.
• Income has three important variables:
– COE ( COMPENSATION OF EMPLOYEES)
– OS (OPERATING SURPLUS)
– MISE (MIXED INCOME SELF EMPLOYED)
7
Ravi Muchhal (R) 2013-15 DBS
Compensation of
Employees
Operating Surplus Mixed Income of
the Self
Employed
SALARY PAID SALARY
CASH IN PAID IN
HAND KIND
•BASIC PAY FREE
HOUSING
•DEARNESS MEDICAL
ALLOWANCE FACILITIES
•OVERTIME FREE
UNIFORM
•COST OF FREE FOOD
TRAVEL
INCOME INCOME
FROM FROM
PROPERTY WORK
• RENTAL UP
INCOME (UNDIVIDED
PROFIT)
• INTEREST CT
INCOME (CORPORATE)
(CORPORATE
TAX)
• ROYALTY D
(DIVIDEND)
1. Profession of Doctors,
Lawyers
8
Ravi Muchhal (R) 2013-15 DBS
VALUE ADDED METHOD
• The production method measures national
income as the sum of net products produced by
the production units in the given period.
• The production approches looks at GDP from the
stand point of value added by each input in the
production process.
• Major challenge- problem of double counting
output of many business = input of some other.
9
Ravi Muchhal (R) 2013-15 DBS
Expenditure method
• Under expenditure method (which is also known as
“consumption and investment method” or “income disposal
method”).
• National income is estimated by aggregating all the final
expenditures in an economy during a year.
• The estimation of national income under expenditure method
involves following steps:
• Step1: To identify economic units incurring final
expenditure.
• Step2: Classification of final expenditure
• Step3: Measurement of final expenditure on domestic
product
• Step4: Estimation of NFIA
• Step5: Estimation of national income.
10
Ravi Muchhal (R) 2013-15 DBS
Calculation of NI through expenditure
method
• Gross domestic product at mp
(GDPmp)= private final consumption expenditure +
govt. final expenditure + gross fixed capital formation
+ change in stock + net acquisition of valuables + net
exports (exports – imports)
• GNPfc = GDPmp – NFIA
• NNPfc = GNPmp – DEP. – NET INDIRECT TAXES.
11
Ravi Muchhal (R) 2013-15 DBS
COMPONENTS OF FINAL EXPENDITURE
12
Final consumption
expenditure
Gross domestic capital
formation
Net exports
Pvt. Final
consumption
expenditure
Govt. final
consumption
expenditure
exports imports
Gross domestic fixed capital
formation
Change in stocks Net acquisition
of variables
Closing stock Opening stock
Ravi Muchhal (R) 2013-15 DBS
Comparision of three methods
• The PRODUCT METHOD is very suitable for the
primary sector such as agriculture, industries
etc.
• The INCOME METHOD is appropriate for the
teritary and service sectors.
• The EXPENDITURE METHOD is only for the
calculation of identical relationship between
three method.
13
Ravi Muchhal (R) 2013-15 DBS
Problems in calculating national income
• Problems of double counting
• Non-monetary transaction
• Public services
• Transfer payments
• Existence of Non-Monetized Sector
• Production for Self Consumption.
14
Ravi Muchhal (R) 2013-15 DBS
2 . Measurement of national income in india was
done by using:
a. income method
b. output method
c. expenditure method
d. both income and output methods
15
Ravi Muchhal (R) 2013-15 DBS
3. The domestic product is estimated on the basis
of the prevailing prices it is called
a. GDP at current price
b. GDP at constant price
c. GDP at market price
d. None of the above
16
Ravi Muchhal (R) 2013-15 DBS
4. GDP at factor cost can be measure as:
a. GDP at market price- income tax+ subsidies
b. GDP at constant price - income tax+ subsidies
c. GDP at current price - income tax+ subsidies
d. None of the above
17
Ravi Muchhal (R) 2013-15 DBS
5 . Estimate of national income in india are usually
prepared by:
a. Reserve bank of india
b. Planning commission
c. Central statistical organisation
d. National income commitee
18
Ravi Muchhal (R) 2013-15 DBS
19
Ravi Muchhal (R) 2013-15 DBS

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National income

  • 1. NATIONAL INCOME PRESENTED BY: Ravi Muchhal Doon Business School PGDM 2013-15 1 Ravi Muchhal (R) 2013-15 DBS
  • 2. CONTeNT 1. Meaning of national income 2. Concept of national income 3. Methods of measuring national income 4. Income method 5. Value added method 6. Expenditure method 7. Comparison of three methods 8. Problems 2 Ravi Muchhal (R) 2013-15 DBS
  • 3. MEANING OF NATIONAL INCOME • National income or national product is defined as the total market value of all the final goods and services produced in an economy in a given period of time. • The money value of all goods and services produced in a country during a year is called national income. • A country is high national income is said to be a prosperous country. 3 Ravi Muchhal (R) 2013-15 DBS
  • 4. NATIONAL INCOME AGGREGATES 1 . GROSS=NET+DEP 2. NET=GROSS+DEP 1.NATIONAL=DOMESTIC+N FI 2.DOMESTIC=NATIONAL- NFIA 1.MP=FC+NIT 2.FC=MP-NIT 4 Ravi Muchhal (R) 2013-15 DBS
  • 5. Concept of national income • GDPFC = NDPFC +D • GDPMP= GDPFC + N.I.T • GNPMP= GDPMP+NFIA • NDPFC= NNPFC- NFIA • NNPMP= GDPMP -D • NNPFC= NNPMP -N.I.T 5 Ravi Muchhal (R) 2013-15 DBS
  • 6. METHODS OF MEASURING NATIONAL INCOME CIRCULAR FLOW INCOME EXPENDITURE VALUE ADDED 6 Ravi Muchhal (R) 2013-15 DBS
  • 7. INCOME METHOD • This method approaches national income from distribution side. In the other words , this method measures national income ath the phase of distribution and appears as income paid and or received by individuals of the country. • Income has three important variables: – COE ( COMPENSATION OF EMPLOYEES) – OS (OPERATING SURPLUS) – MISE (MIXED INCOME SELF EMPLOYED) 7 Ravi Muchhal (R) 2013-15 DBS
  • 8. Compensation of Employees Operating Surplus Mixed Income of the Self Employed SALARY PAID SALARY CASH IN PAID IN HAND KIND •BASIC PAY FREE HOUSING •DEARNESS MEDICAL ALLOWANCE FACILITIES •OVERTIME FREE UNIFORM •COST OF FREE FOOD TRAVEL INCOME INCOME FROM FROM PROPERTY WORK • RENTAL UP INCOME (UNDIVIDED PROFIT) • INTEREST CT INCOME (CORPORATE) (CORPORATE TAX) • ROYALTY D (DIVIDEND) 1. Profession of Doctors, Lawyers 8 Ravi Muchhal (R) 2013-15 DBS
  • 9. VALUE ADDED METHOD • The production method measures national income as the sum of net products produced by the production units in the given period. • The production approches looks at GDP from the stand point of value added by each input in the production process. • Major challenge- problem of double counting output of many business = input of some other. 9 Ravi Muchhal (R) 2013-15 DBS
  • 10. Expenditure method • Under expenditure method (which is also known as “consumption and investment method” or “income disposal method”). • National income is estimated by aggregating all the final expenditures in an economy during a year. • The estimation of national income under expenditure method involves following steps: • Step1: To identify economic units incurring final expenditure. • Step2: Classification of final expenditure • Step3: Measurement of final expenditure on domestic product • Step4: Estimation of NFIA • Step5: Estimation of national income. 10 Ravi Muchhal (R) 2013-15 DBS
  • 11. Calculation of NI through expenditure method • Gross domestic product at mp (GDPmp)= private final consumption expenditure + govt. final expenditure + gross fixed capital formation + change in stock + net acquisition of valuables + net exports (exports – imports) • GNPfc = GDPmp – NFIA • NNPfc = GNPmp – DEP. – NET INDIRECT TAXES. 11 Ravi Muchhal (R) 2013-15 DBS
  • 12. COMPONENTS OF FINAL EXPENDITURE 12 Final consumption expenditure Gross domestic capital formation Net exports Pvt. Final consumption expenditure Govt. final consumption expenditure exports imports Gross domestic fixed capital formation Change in stocks Net acquisition of variables Closing stock Opening stock Ravi Muchhal (R) 2013-15 DBS
  • 13. Comparision of three methods • The PRODUCT METHOD is very suitable for the primary sector such as agriculture, industries etc. • The INCOME METHOD is appropriate for the teritary and service sectors. • The EXPENDITURE METHOD is only for the calculation of identical relationship between three method. 13 Ravi Muchhal (R) 2013-15 DBS
  • 14. Problems in calculating national income • Problems of double counting • Non-monetary transaction • Public services • Transfer payments • Existence of Non-Monetized Sector • Production for Self Consumption. 14 Ravi Muchhal (R) 2013-15 DBS
  • 15. 2 . Measurement of national income in india was done by using: a. income method b. output method c. expenditure method d. both income and output methods 15 Ravi Muchhal (R) 2013-15 DBS
  • 16. 3. The domestic product is estimated on the basis of the prevailing prices it is called a. GDP at current price b. GDP at constant price c. GDP at market price d. None of the above 16 Ravi Muchhal (R) 2013-15 DBS
  • 17. 4. GDP at factor cost can be measure as: a. GDP at market price- income tax+ subsidies b. GDP at constant price - income tax+ subsidies c. GDP at current price - income tax+ subsidies d. None of the above 17 Ravi Muchhal (R) 2013-15 DBS
  • 18. 5 . Estimate of national income in india are usually prepared by: a. Reserve bank of india b. Planning commission c. Central statistical organisation d. National income commitee 18 Ravi Muchhal (R) 2013-15 DBS
  • 19. 19 Ravi Muchhal (R) 2013-15 DBS