• 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

• 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

• 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

• 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)

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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