The document outlines the concept of national income, which is the monetary value of all economic activities in a nation, and discusses various measures including Gross Domestic Product (GDP), Gross National Product (GNP), Net Domestic Product (NDP), and Net National Product (NNP). It elaborates on methods to measure national income such as the net product method, factor income method, and expenditure method, while also explaining the circular flow model of the economy involving different sectors: households, businesses, government, and financial institutions. The document highlights the equilibrium in economic transactions and the role of each sector in the flow of income and goods/services.

1. Presented by:
NAVEEN BINWAL
GBPUAT

2.  National income is the final outcome of
all economic activities of a nation valued
in terms of money.
 Economic activities generate a large
number of goods and services , and make
net addition to the national stock of
capital.
 It is the money value of the end result of
all economic activities of the nation.

3. Measures of national income
GROSS DOMESTIC PRODUCT
 The gross domestic product is defined as
the market value of all final goods and
services produced in the domestic
economy during a period of one year, plus
income earned locally by the foreigners
minus incomes abroad by the nationals .
 GDP= C+I+G+(X-M)

4. GROSS NATIONAL PRODUCT (GNP)
 The GNP is defined as the value of all
final goods and services produced
during a specific period, usually one
year, plus incomes earn abroad by the
nationals minus incomes earned locally
by the foreigners.
 GNP = GDP-Depreciation

5. NET DOMESTIC PRODUCT AT MARKET
PRICE (NDP at MP)-
 To know the value of NDP , we need to
deduct the depreciation of a country’s capital
goods from its GDP.
 Depreciation is defined as the reduction in the
value of an asset by using it.It is also called
“capital consumption allowance”.
NDP at MP = GDP at MP - Depreciation

6. NET NATIONAL PRODUCT(NNP)
 In the process of producing
goods and services (including
capital goods), a part of total
stock of capital is used
up.Depreciation is the term used
to denote the worn out or used
up capital.
NNP = GNP - DEPRECIATION

7.  National income can be
measured by three different
methods:
NET PRODUCT METHOD
When the entire national economy
is considered as an aggregate of
producing unit.

8. FACTOR INCOME METHOD
When national economy is
considered as combination of factor
owners and users.
EXPENDITURE METHOD
When national economy is viewed
as collection of spending units.

9.  It is also called the ‘value added method’.
 This method consist of three stages:
i. Estimate the gross value of domestic output
in the various branch of production.
ii. Determine the cost of material & services
used & also the depreciation of physical
asset.
iii. Deducting these cost & depreciation from
gross value to obtained the net value of
domestic output.

10.  Also known as Income method and
Factor-share method.
 The national income is calculated by
adding up the all the “income accruing
to the basic factor of production used in
producing the national product”.
National income = Rent + Wages+ Interest
+ Profit

11.  Also known as final product method.
 Measures NATIONAL INCOME at the final
expenditure stages.
 In estimating the total National expenditure
any one of two method used:
 i. all the money expenditure at market price
are computed and added together.
 ii. The value of all the products finally
disposed off are computed and added up, to
arrive at the total national expenditure.

12. The basis of this flow is the economic
interdependence of consumer and seller
between whom the circular flow of
production of goods and services, income and
expenditure takes place.
There are different type of models which are
as follows:-
 Two sector model
 Three sector model
 Five sector model

13. There are two sectors in the economy:-
 Business sector
 Household sector
BUSINESS SECTOR :- The business
sector(or the firms) hires factor of
production owned by households sector
and it is sole producer of goods and
services in the economy.

14. Household sector:-
The household sector (or the
households) is the sole buyer of
goods and services. It spends its
income on the goods and
services produced by the
business sector. They are also
suppliers of labour and several of
other factors of production.

15.  In simple circular flow of income and product,
there are two principles which are involved.
 First- In the business transactions, the sellers of
goods receive exactly the same amount which
the buyer spend on them.
 Second- the goods and services, flow in one
direction and money payment flow in the other
direction.

16.  We thus finds that money flows from
business firms to households as factor
payments and then it flows back from
households to firms. Thus there is in fact
a circular flow of income.
 An economy is said to be in equilibrium
when the value of output flows is equal
to the value of money flow.

18.  This variation adds the government
sector (or public sector) to the household
and business sectors that make up the
two-sector model.
 A three sector model includes the three
domestic sectors, the household sector,
the business sector, and the government
sector.

19.  First, take the circular flow between the
household sector and the government sector.
Taxes in the form of personal income tax and
commodity taxes paid by the household sector
are outflows or leakages from the circular
flow.
 Next take the circular flow between the
business sector and the government sector. All
types of taxes paid by the business sector to
the government are leakages from the circular
flow.

20.  Now we take the household, business and
government sectors together to show their
inflows and outflows in the circular flow.

21.  The five-sector circular flow model describes
the operation of the economy and the linkages
between the main sectors in the economy. The
five-sector model is based on dividing the
economy into five sectors.
 A sector may be defined as a part of the
economy where the participants are engaged
in a similar type of economy activity.
1. Individuals 2. Businesses 3. Financial
institutions 4. Government 5. International
Trade

22. Individuals- ƒ
 This sector consists of all individuals in
the economy.These individuals are the
owners of productive resources, and the
consumers in our economy.
 Businesses this sector consists of all the
business firms engaged in the production
and distribution of goods and services
(apart from financial services).

23. FINANCIAL INSTITUTION-
 Financial Institutions ƒthis sector consists of
all those institutions that are engaged in the
borrowing and lending of money, acting as
the intermediaries between those who save,
and borrowers of money.
 Financial institutions are needed for
individuals and firms to be able to
undertake saving and investment. They
perform the function of mobilising savings
for investment.

24. ƒGovernment -
It is involved in the satisfaction of
collection (community) wants. ƒ
 It obtains the resources to do this
through imposing taxes on the other
sectors of the economy.
 ƒIt uses this tax revenue to undertake
various government expenditures.