G D GOENKA PUBLIC SCHOOL, JAMMU

(Governed by Om Prakash Bansal Charitable Trust Regd.)

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SUBJECT: Economics (XII)
“MEASUREMENT OF NATIONAL INCOME”
Brief Notes

NATIONAL INCOME AND RELATED AGGREGATES – METHODS OF CALCULATING N.Y.

Value Added = Value of Output – Intermediate Cons. CoE – (1) Wages and Salaries in Cash; (2) Wages
Value of Output = Sales + Change in Stock and Salaries in Kind; (3) Employer’s contribution in
OR Social Security Schemes.
Value of Output = Domestic Sales + Export Operating Surplus – Factor Payment like
+ Change in Stock Rent, Royalty, Interest and Profit.
STEPS- Mixed Income – Income from Self
(1)Identify and classify the production units i.e. employment
Primary, Secondary and Tertiary sector. STEPS-
(2) Estimate GDP at Market Price (1)Identify and classify the production units.
ƩGVAMP = GDPMP. (2)Estimate the factor income paid by each sector.
(3) Calculate Domestic Income (NDPFC) = (3) Calculate Domestic Income (NDPFC) =
NDPFC = GDPMP – Depreciation – Net Indirect Tax. NDPFC = C.o.E. + Operating Surplus
(4) Estimate net factor income from abroad (NFIA) + Mixed Income
to calculate National Income. (4) Estimate net factor income from abroad (NFIY)
NNPFC = NDPFC + NFIA. to arrive at National Income.
NNPFC = NDPFC + NFIA.
PRECAUTIONS-
PRECAUTIONS-
(1)Intermediate Goods are not to be included in N.I.
(2)Sale and Purchase of second hand goods is not (1)Transfer Incomes are not included in the NY.
included. (2)Income from sale of second hand goods will
(3) Production of services for self-consumption not be included.
(Domestic Services) is not included. (3) Income from sale of shares, bonds and
(4) Production of Goods for self-consumption is not debentures will not be included.
included. (4) Windfall gains are not included
(5) Imputed value of owner-occupied houses should (5) Imputed value of services provided by owners
of production units will be included.
be included.
(6) Change in stock of Goods will be included. (6) Payments out of past savings are not included.
(7) Indirect Taxes are not included.
{GDCF = Net Domestic Capital Formation+ Dep.
GDCF=Net Domestic Fixed Capital Formation
+ Change in Stock + Depreciation
GDCF = Gross Domestic Fixed Capital Formation
+ Change in Stock}
STEPS-
(1) Identify the Economic units incurring Final
Expenditure
(2) Classification of Final Expenditure
GDP MP=PFCE + GFCE + GDCF +NE
(2) Calculate Domestic Income (NDPFC) =
NDPFC = GDPMP – Depreciation – NIT
(4) Estimation of National Income.
NNP FC = NDP FC + NFIA.
PRECAUTIONS-
(1) Expenditure on Intermediate Goods will not
be included in the National Income.
(2)Transfer payments are not included.
(3) Purchase of second hand goods will not be
included.
(4) Purchase of financial assets (shares,
debentures, Bonds) will not be included.
(5) Expenditure on own account production
will be included in the National Income.

DOMESTIC NATIONAL DEPRECIATION –

INCOME INCOME Loss in the value of assets due to normal wear and tear passesof time and expected
It is territorial It is a national concept obsolescence in technology. Also known as Consumption of Fixed Capital orCurrent
concept Replacement Cost.
It does not include It includes NFIA
NFIA NFIA = Factor Income Received from Abroad– Factor income Paid to Abroad
It includes It includes all final NFIA = Net Compensation of Employees ┼ Net income from property and
production of all goods and services
final goods and produced by normal
entrepreneurship ┼ Net Retained earnings
services within residents of a country NET INDIRECT TAX (NIT) = Indirect Tax – Subsidies.
domestic territory within or outside
domestic territory. (Indirect Taxes impose by the government on production units.
Subsidies are financial assistance given by the government to production units.