ECONOMICS GRADE XII

National Income and related Aggregates – Formulae sheet

A. Three Basic FORMULAE to derive different national income aggregates:

1) Gross – Depreciation = Net 2) Factor cost + Net indirect taxes = 3) Domestic Product + NFIA = National
Market Price Product

 eg. GDPmp - Consumption of where where NFIA(Net factor income received

fixed capital = NDPmp
 eg. NNPfc + Consumption
of fixed capital = GNPfc
NOTE: NNPFC is NATIONAL INCOME
Net Indirect Taxes = Indirect taxes -Subsidies
 eg. NDPMP – net indirect taxes = NDPfc
 eg. Eg. GDPfc + net indirect taxes =
GDPmp
from abroad) = Factor income received
from abroad– Factor income paid to
abroad
 eg. GDPmp + NFIA = GNPmp
 eg. NNPfc - NFIA = NDPfc

B. Three Methods of the Measurement of National Income

1. Production Method or Value Added Method

GVAMP or GDPMP = Value of output – Intermediate Consumption
= Sales + Change in stock -– Intermediate Consumption
NNPFC = GDPMP – Consumption of fixed capital + NFIA – Net Indirect Taxes

2. Income Method
NDPFC = Compensation of employees + Operating Surplus + Mixed Income of Self- employed
NNPFC = NDPFC + NFIA

3. Expenditure Method
GDPMP = Private final consumption expenditure + Govt. final consumption expenditure
+ Gross Domestic Capital Formation + Net Exports
Or GDPMP = PFCE + GFCE + GDCF + NXs
NNPFC = GDPMP – Consumption of fixed capital + NFIA – Net Indirect Taxes

C. Three Methods of the Measurement of National Income

1. Production Method or Value Added Method
GVAMP or GDPMP = Value of output – Intermediate Consumption
= Sales + Change in stock -– Intermediate Consumption
NNPFC = GDPMP – Consumption of fixed capital + NFIA – Net Indirect Taxes

Value of output = Sales + Change in stock + Production for Self Consumption ( Own Account Production)
Sales can be given as Change in Intermediate Consumption can be given as follows:
follows: stock = a. Intermediate Consumption = Domestic Purchases of raw
a. Sales = Closing Stock – materials + Import of raw material
Domestic Opening Stock or
Sales + b. Intermediate Consumption = Purchase of raw
Exports Or material/non-durable goods
or Increase in or
b. Sales = stock(Add c. Intermediate Consumption = Purchases by Firm X from
Sales to this) Firm Y + Purchases by Firm X from Firm Z + ….etc.
X+
Sales to Or Note: If ‘Purchase of machinery/durable goods’ is given, don’t
Y+ Decrease in take it as intermediate consumption as it is final consumption.
……+ stock
Sales to (Subtract this)
govt. +
 Sales to final consumers

2. Income Method

NDPFC = Compensation of employees + Operating Surplus + Mixed Income of Self- employed

NNPFC = NDPFC + NFIA

Compensation of employees(COE)
can be given as follows:
COE = Emoluments of Employees
OR
COE = Wages and salaries in cash
+ Wages and salaries in kind
+ Employer’s contribution to
social security schemes
Note: If ‘Employee’s contribution to
social security schemes’ is given,
ignore it.
Operating Surplus(OS) can be given as follows: Mixed Income
OS = Rent + Royalty + Interest + Profit of Self-
employed
Profit can be given as follows: can be given as
Profit = Dividends + Corporate tax + Undistributed Mixed Income
profits ( or Savings of private corporate sector or
Retained earnings of private corporate sector)
Or Profit = Profit after tax + Corporate tax
Or Profit = Profit before tax

3. Expenditure Method

GDPMP = PFCE + GFCE + GDCF + NXs

NNPFC = GDPMP – Consumption of fixed capital + NFIA – Net Indirect Taxes

PFCE = Household Final Consumption Expenditure + Final Consumption GFCE = Government purchases of
Expenditure of private non-profit institutions serving households goods and services
Or Personal Consumption Expenditure
Net Exports = Exports – Imports
GDCF = Gross Domestic Fixed Capital Formation + Change in Stock
or If instead of Net Exports, Net Imports
GDCF = Net Domestic Fixed Capital Formation + Change in Stock + CFC are given, then the formula becomes -
or GDPMP = Private final consumption
GDCF expenditure + Govt. final consumption
= Gross public investment + Gross business fixed investment expenditure + Gross Domestic Capital
+ Gross residential construction investment + Inventory investment Formation - Net Imports

D. Please note :
i) There will be some redundant (extra, unnecessary) components which are not to be included.
ii) So, find out the main components. If they are given, ignore the sub-components. Otherwise
look for the sub-components which constitute the main component.

iii) The following are REVERSE ENTRIES. If one is to be added, the other one should be subtracted and vice-versa.
a. Net factor income received from abroad and Net factor income paid to abroad.
b. Net Indirect Taxes and Net Subsidies.
c. Net exports and Net imports.

iv) Indirect Directs are – GST, Taxes on Production ( Excise Duty), Entertainment tax, Service tax, Sales tax,
Value Added Tax, Custom Duty, Import Duty, Octroi
v) Direct taxes are – Income tax, Corporate tax and Wealth Tax.

vi) Sometimes the following two components of NFIA will be given :

NFIA = Net Compensation of Employees from Rest of the World
+ Net Income from Property and Entrepreneurship from Rest of the World
 + Net Retained Earnings from Rest of the World.

vii) Sometimes Depreciation has to be calculated by ‘Straight Line Method’ of Accountancy.

Eg. A machinery of Rs. 5000 has a lifespan of 5 years. This implies Depreciation is of Rs. 1000 (per year).