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PRESENTATION ON

NATIONAL INCOME
Introduction

• National income is the final outcome of all economic


activities of a nation valued in terms of money

• According to J. M. Keynes
National income is the money value of all final
goods and services produced in a country during a
year
continued……………….

• Economic activities- all human activities


which create goods and services that can be
valued at market price
• Help us to know the economic progress
achieved and to make comparative study
• In India, national income is calculated and
published by the central statistical
organization (cso)
Measures of national income

• Gross national product (GNP)


 GNP= Value of all final goods & services +income from abroad

• Gross domestic product (GDP)


 market value of final goods & services produced in the domestic economy
during a period of 1 year + income earned locally by foreigners – income earned
abroad by nationals

• Net national product (NNP)


NNP =GNP – depreciation (used up capital in the process of production)
Gives the measure of net output available for consumption by the society
Methods of computation

• Product method OR Net output value added method


 Entire national economy is considered as an aggregate of producing units
 Production units classified in to 3 sectors:
 Primary - agriculture, forest, fishing
 Secondary – electricity, trade, manufacturing
 Tertiary – communications, banking/insurance, health , education and other
services
 GNI= Money value of total goods& services+ income from abroad
 Helps us to find out contributions of various sectors to national income
Methods……………

• Income method
 Incomes accruing to the basic factors of production used in producing the national
product
 GNI = Rent +wage + interest + profit +income from abroad
 Labor & capital – factor of production
 3 types of income-
 Labor income – wages , free health and education, pension ,employee’s welfare fund.
 Capital income – dividends, interest on bonds, royalties etc.
 Mixed income –
1) farming enterprises 2) sole proprietorship 3) professional
 Help us to know the contributions made by different landlords, laborers, capitalists
& organizers to national income
Methods………..

• Expenditure method or final product method


 GNI= Individual expenditure +govt. expenditure
 2 methods:
 All money expenditures at market price are computed and added up
together.
 Private consumption expenses+ direct tax payment+ private savings
+payment to non-profit making institutions and charitable institutions

 Value of all the products finally disposed off are computed and added up
 Private consumer goods +public goods and services +private investment
goods +net investment abroad
Which method should choose?

• Net product method , because-


 This method requires classification of economic
activities & output thereof which is much easier.
Easy availability of data on economic activities
Other related incomes

• Per capita income ( PCI)


Average annual income of the people of the country
National income / population

• Personal income (PI)


PI = WAGES +RENT +INTEREST +PROFIT
+OTHERS
Importance of national income

• To estimate economic development


• To know how far development objectives
were achieved
• To know the contributions of various
sectors to national income
Difficulties while calculation

• Self consumed production


• Incorrect statistics
• No systematic accounts
• Unreliable data
• Illiteracy and ignorance
• Lack of proper criteria for measuring the value of services
Reason for slow growth of
India
• Slow growth of agricultural sector
• Defect in planning
• Rapid growth of population
• Poverty
• Under-utilization of productive capacity of machines
Theories of national income

• According to keynesian theory of income


determination, the entire economy divide in to 4
sectors:
Household sector
Firms or the business sector
Government sector
Foreign sector
Three models of keynesian
theory

• Two-sector model – household &business


sector (closed economy& no savings)
• Three-sector model –household, business
and government sectors
• Four-sector model –foreign sector with the
three sector model
That’s all for the day

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