NATIONAL INCOME

Concepts and Measurement

.

Increase in national
income of a country can be
considered as first step to
economic growth of the
country.
.
 Economic development create jobs
at acceptable wages and benefits,
and produce goods and services that
meet social needs such as
--------------------------affordable
housing, greater community control,
and broader asset ownership.
.
Economic development
provides the resources
needed to make further
investments in-----------
education, government
services, amenities,
infrastructure and quality of life.
.
It is also a necessary
component for
----------------------------------sustai
ning competitiveness of the
economy and raising overall
productivity and income.
Economic Growth and Development
 Although economic growth and
development are similar in
meaning, they have some
essential differences:----------------
 1.Economic growth refers to the
increasing ability of a nation to
produce more goods and services.
.
 2.Economic development implies
that individuals of that nation will be
better off and takes into account
changes-------------- in economic
and social structures that will
reduce or eliminate poverty.
.
 Economic development can be
measured in a number of ways
including
-----------------------------------------------------
-----the Human Development Index,
Gender Empowerment Measure,
Human Poverty Index and Human
Freedom Index.
Economic Growth and National
Income
 National Income ----- Income of
a country in a given year---- is the
basic measure of economic
growth.
 We study the concept of national
income for two reasons.
.
.

FIRST---------- national
income growth rate and data
provide the formal structure
for macroeconomic analysis.
.
 SECONDLY------knowledge of
national income, its accounts, and
movements is of importance to
business firms, as the business
sales is indirectly dependent on
its magnitude.
.
Versions of National Income :

 Gross Domestic Product (GDP)

 Gross National Product (GNP)
GDP :
GDP is the basic measure of
national output and economic
growth.
.
.
 The results of GDP would help the country to
forecast the economic progress,
 determine the demand and supply,
 understand the buying power of the people,
 the per capita income, the position of the
economy in the global arena.
 The Indian GDP is calculated by the
expenditure method.
.
 The different sectors contributing to the India
GDP are classified into three segments, such
as ----------
 primary or agriculture sector,
 secondary sector or manufacturing sector,
 and tertiary or service sector
.
 Cost factor' or 'Actual price' method -
these are the two methods to calculate
Indian Gross Domestic Product.
.
 The method of Calculating India GDP is the
expenditure method, which is,
 GDP = consumption + investment +
(government spending) + (exports-imports)
and the formula is GDP = C + I + G + (X-M)
.
 GDP is the value of all final
goods and services produced
within the country’s geographical
territory, irrespective of the
ownership of resources.
.
 EX---It includes the value of cars
manufactured, houses constructed
and so on.
 The output of each of these is
valued at its market price and
money values are added together
to get GDP.
GNP:
 GNP is the income produced
through the country’s owned
resources, irrespective of the place
of production.
 This means that GNP can be
calculated by adding factor
payments (receipts) from abroad to
the GDP.
.
 Ex--- Part of the US GDP include
the profits earned by Japanese firm
Honda from its U.S. manufacturing
activities.
 These profits are also part of
Japan's GNP as it would be
considered as receipts from
abroad in Japan.
.

The growth rate of the

economy normally refers
to the rate at which the GDP
is increasing.
.

There are two important

reasons due to which GDP
grows over
time-----------------------------
.
THE FIRST REASON for
change in GDP is that available
amount of resources in the
economy changes with time.
THE main resources are
capital and labour.
.
THE SECOND REASON for
GDP is that the efficiency of
factors of production may
increase or decrease over a
period of time.
.
Gross Domestic product( GDP)
or Gross National Product
(GNP) can be taken as value
for National income.
.
Per capita income (GDP per
capita) is a good indication for
measuring economic growth in
different countries.
.
Dividing the state domestic
product by population we obtain
the per capita income.
,

GDP per capita: This is

seen as a measurement of
the ability of people to
access goods and services.
.
 Gauging the health of the India economy -
India GDP is the best tool!
 Going by figures, India GDP has already
crossed the trillion-dollar mark, other peers in
this sphere being ----------US, Japan,
Germany, China, UK, France, Italy, Spain,
Canada, Brazil and Russia.
Measuring Development
 Economic growth as a measure
fails to account for some important
social and economic factors
such as
---------------------------------------the
standard of living, life expectancy,
literacy and inequalities in income
distribution.
.

Various indicators have

been developed to
compensate for the
limitations of economic
growth measurements.
.

Rather than just measuring

the economic living
standards in a country,
development indicators
measure the welfare of
individuals in a country.
.
 THE MAIN development indicator
used is the Human Development
Index (HDI).

 It was devised by the United Nations

Development Program (UNDP) to
measure the--------------
.
------------------------Economic
achievements of a nation in
combining economic growth
and social welfare.
.
THE HDI takes into account
three major
factors--------------------------------
----------
1. Life expectancy at birth:
(Living a long and healthy life).
.
2. Levels of educational
attainment : The HDI
measures adult literacy and the
ratio of people being imparted
primary, secondary and tertiary
education.
.

3. Gross Domestic

Product(GDP) per capita:
This is seen as a
measurement of the ability of
people to access goods and
services.
.
 The HDI is essentially a score
between 0 and 1.
 While a score of 0 would mean
zero human development, a score
of 1 denotes the maximum on the
scale.
.
 In 2003, HD report placed Norway as
the top ranked nation with an HDI OF
0.944.
 Australia was fourth with HDI of 0.939.
 When comparing the HDI of certain
countries, the GNP per capita rank
should also be considered.
.
 A Nation with a much higher HDI
than GNP per capita has had a
relatively high level of economic
development given their level of
economic growth.
 EX----- Sweden and Norway fall
under this category.
.
 IN contrast, some nations may have a higher
GNP per capita ranking than their HDI
ranking.
 This indicates that there is a very high level of
inequality, which means that high income
level is only enjoyed by a small proportion of
the population.
EX--- Saudi Arabia whose GNP per capita
ranking is much higher than its HDI
ranking.
Other Measures of Development

1. UNDP
2. WBDI
3. Economic Development
Indicator
Other Measures of Development:
 The UNDP has also developed a
number of other indicators to
measure ‘development’.
 1.It has developed a specific
Gender Development Index which
compares the HDI between male
and female populations,
.

2. a Gender Empowerment

Measure, which reflects
gender inequality in
economic and political
opportunities
.

3. and a Human Poverty

Index (HPI) which measures
outcome similar to that of the
HDI, but examines the people
who are being deprived of
human development.
.

The HPI is adjusted for

developing and
developed countries.
World Bank Development Indicator

The World Bank developed

its own indicator called
World Bank Development
indicator(WBDI).
THIS has made to
Supplement the HDI.
.
 The WBDI mainly measures the
------------------------------------------quality
of life, the success of measures to
alleviate poverty,
-----------------------------------------------------
-------the current account balance,
malnutrition, tax rates, life expectancy,
population size, educational standards
such as literacy and infant mortality.