A Report on

“Analysis of National Income of Bangladesh”

Course Code : ECO 212

Course Title : Macro Economics

Submitted by:
Group B
ID no: 1903022 - 1903043
Reg. no: 08802 - 08823
Level: II, Semester: I
Faculty of Business Administration
Patuakhali Science and Technology University

Submitted to:
Md. Moqbul Hossain Anup Kumar Mandal
Professor Associate Professor
Department of Economics & Sociology Department of Economics &Sociology
Faculty of Business Administration Faculty of Business Administration
Patuakhali Science and Technology Patuakhali Science and Technology
University University

Date of Submission: 13 October, 2022

 Attendance Report
Level : 02
Semester : 01
Course code : ECO 212
Course title : Macro Economics
Report Title : Analysis of National Income of Bangladesh

Name ID No. Reg. No. Signature

Md. Taufiq Jaman Rakib 1903022 08802

Sulayman Banna 1903024 08804

Md. Mojammel Hossen Khan 1903025 08805

Mesbah Uddin 1903026 08806

Maliha Amin (Pritha) 1903027 08807

Umme Hamamah 1903029 08809

Tanvir Islam 1903030 08810

Md. Mehedi Hasan Emon 1903032 08812

Israt Jahan Munni 1903034 08814

SK. Taufeeque Ur-Rahman Topu 1903035 08815

Md. Mazharul Islam Maruf 1903036 08816

S. M. Zunaeid Mahmud Lam 1903037 08817

Noor A Alam Shanto 1903038 08818

Md. Abu Shiam 1903039 08819

Noushin Tabassum Maliha 1903041 08821

Tawaz Murshed 1903043 08823

ii
 Evaluation Details of Group
Level : 02
Semester : 01
Course code : ECO 212
Course title : Macro Economics
Date of submission : 13 October, 2022

Obtained (20)
Examination
Presentation

Total Marks
Preparation
Exam Roll

Q & A (5)
Signature
Reg. No

(10)
Name

(5)
1903022 Md. Taufiq Jaman Rakib 08802
1903024 Sulayman Banna 08804
1903025 Md. Mojammel Hossen Khan 08805
1903026 Mesbah Uddin 08806
1903027 Maliha Amin (Pritha) 08807
1903029 Umme Hamamah 08809
1903030 Tanvir Islam 08810
1903032 Md. Mehedi Hasan Emon 08812
1903034 Israt Jahan Munni 08814
SK. Taufeeque Ur-Rahman
1903035 08815
Topu
1903036 Md. Majharul Islam Maruf 08816
1903037 S. M. Zunaeid Mahmud Lam 08817
1903038 Noor A Alam Shanto 08818
1903039 Md. Abu Shiam 08819
1903041 Noushin Tabassum Maliha 08821
193043 Tawaz Murshed 08823

Evaluated by: ---------------------------------------

iii
Date: 13 October, 2022

Md. Moqbul Hossain

Professor
Department of Economics & Sociology
Faculty of Business Administration

Anup Kumar Mandal

Associate Professor
Department of Economics &Sociology
Faculty of Business Administration

Subject: Letter of Authorization

Dear Sir,
This is our truthful declaration that the report on “Analysis of National Income of Bangladesh”
is not a copy of any research report or book previously made by any other group. I also express
my honest confirmation in support of the fact that the report has neither been used before to
fulfil any other course related purposes and not it will be submitted to any other person or
authority in future.

Sincerely Yours,

----------------------------------
Noushin Tabassum Maliha
On behalf of the group (B)
Level: II, Semester: I
Faculty of Business Administration

iv
Date: 13 October, 2022

Md. Moqbul Hossain

Professor
Department of Economics & Sociology
Faculty of Business Administration

Anup Kumar Mandal

Associate Professor
Department of Economics &Sociology
Faculty of Business Administration

Subject: Letter of Transmittal

Dear Sir,
We are grateful to you that you have assigned us to submit the report on “Analysis of National
Income of Bangladesh”. As a partial requirement of the course “Macro Economics” (ECO 212).
This report is prepared on the basis of secondary data.

Therefore, we would like to request you to accept our report. And at last, thank you for
assigning us the report. We sincerely hope this report will live up to your expectation.

Sincerely Yours,

----------------------------------
Noushin Tabassum Maliha
On behalf of the group (B)
Level: II, Semester: I
Faculty of Business Administration

v
 Acknowledgement
We, as everything has done by the willingness of Almighty Allah, are very grateful to Allah
for giving us strength to accomplish this work. Then the respectful gratitude goes on our
honorable course teacher of Macro Economics, Md. Moqbul Hossain, Professor, Department
of Economics & Sociology, Faculty of Business Administration and Anup Kumar Mandal,
Associate Professor, Department of Economics &Sociology, Faculty of Business
Administration, as they continuously helped us by providing valuable guidelines while
preparing this report. Without their great contribution it would be quite impossible for us to
complete this report successfully and in time. We also took help from our senior brothers to
make this report. So special thanks go to them as they deserve it. At last, we are very grateful
to all our group members who gave their best effort from the initial stage to the end of the
report. If everybody would not be cooperative in every work life thinking, analyzing, problem
solving and typing this report would have ended up in smoke. All and all we are very grateful
to all the people who were related directly or indirectly accomplishing this work.

--------------------------------------
Noushin Tabassum Maliha
On behalf of Group: (B)
Level: II, Semester: I
Faculty of Business Administration

vi
 EXECUTIVE SUMMARY
The total income of the nation is called “national income.” The aggregate economic
performance of the whole economy is measured by the national income data. In fact, national
income data provide a summary statement of a country’s aggregate economic activity. National
income is an uncertain term that is used interchangeably with national dividend, national output
and national expenditure. In common parlance, national income means the total value of goods
and services produced annually in a country. In other words, the total amount of income
accruing to a country from economic activities in a year’s time is known as national income. It
includes payments made to all resources in the form of wages, interest, rent and profits. In this
report, we will discuss about: - definitions of National Income, concepts of National Income,
methods of measuring National Income, limitations in measuring National Income, the
importance of National Income analysis, and the inter-relationship among different concepts
of national income of Bangladesh.

vii
 Table of Contents
Acknowledgement .................................................................................................................... vi

EXECUTIVE SUMMARY .....................................................................................................vii

1. Introduction ............................................................................................................................ 1

1.1 Methodology .................................................................................................................... 1

1.2 Objectives of the study: The objectives of term paper are as follows: ............................ 1

1.3 Scope of the study ............................................................................................................ 2

1.4 Limitations of the study.................................................................................................... 2

2. Concepts of National Income................................................................................................. 2

2.1 Gross National Product (GNP): ....................................................................................... 3

2.2 Net National Income ........................................................................................................ 8

2.3 Gross Domestic Product (GDP) ....................................................................................... 8

2.4 National income at factor cost ........................................................................................ 13

2.5 Personal Income ............................................................................................................. 13

2.6 Disposable Income: ........................................................................................................ 14

3. Methods of measuring national income ............................................................................... 16

3.1. Product/Value Added Method ....................................................................................... 16

3.2 Income Method .............................................................................................................. 17

3.3 Expenditure Method ....................................................................................................... 19

4. Circular Flow of National Income of Bangladesh’s Economy ............................................ 20

4.1 Difficulties in Measuring National Income in Bangladesh ............................................ 21

5. Description & Analysis of data ............................................................................................ 23

6. Findings................................................................................................................................ 23

6.1 Conclusion...................................................................................................................... 24

7. Reference ............................................................................................................................. 25

viii
 List of Figures & Graphics
Figure 1 Historical data of GNP of Bangladesh ....................................................................... 6
Figure 2 Consumption Expenditure Graph of Bangladesh ....................................................... 6
Figure 3 Investment (I) expenditure of Bangladesh .................................................................. 7
Figure 4 Net Export data of Bangladesh ................................................................................... 7
Figure 5 GDP of Bangladesh from 2012 - 2020...................................................................... 10
Figure 6 Share of economic sectors in the gross domestic product (GDP) ............................ 11
Figure 7 Disposable income of Bangladesh ............................................................................ 16
Figure 8 Diagram of Circular Flow of Income ....................................................................... 20

ix
1. Introduction

With the development of civilization every activity of humans has become dependent on
economics. National Income is one of the important parts of the National economy. To know
about a country's economic strengths, we get to have Ides of national income. It has great
significance in our daily socio-economic life. Bangladesh is a developing country. Our total
progress depends on some fixed things that are agriculture, industries, state owned Enterprise,
Power and energy, transport and communication and human resource development. Our
economy totally depends on these sectors. National income ascertains a country's prosperity.
Bangladesh is a developing country. We have many economic sectors which contribute in our
national income. But there are some problems in our national economic that hinder our
economic progress some of these are backwardness of industry, restless political situation,
restless industry, lack of skills, consistence of income and spend. If we want to improve our
economic situation, we get to remove these problems. We have to reduce the deficit between
export income and import payment.

1.1 Methodology

Since the main aim of this study is to have good knowledge of the national income of
Bangladesh by analyzing data, some processes were selected to collect the relevant data. Both
qualitative (interviews) and quantitative (questionnaires) methods were included in the study.
It is very much relevant that a partial job is done by following proper methods. As we tried to
make a rational report, we have followed the proper method to perform our job. Every study is
done on the basis of secondary data. Some specific steps have been taken by us to prepare this
report. At first, we have planned about the overall study, and then collected data. Then, the
procedure was discussed. Finally, some basic information related to the assigned topic were
collected from different books of Macro Economics, reports, articles and websites. Then we
have analyzed these data by working as a group. After obtaining sufficient information, we
attempted to conduct an adequate summary of the information and try to analyze the national
income of Bangladesh.

1.2 Objectives of the study: The objectives of term paper are as follows:

i. To know about the economic situation.

ii. To find out most profitable sector in our country

iii. To find out the deficit between export income and import expenditure.

iv. Find out the shortcoming of the economy.

v. Help to distinct next step to develop economic situation.

1.3 Scope of the study

Contribution of main sectors such as agriculture, industry, human resource has been elaborately
discussed here. And the problem of these sectors. Moreover, there is a brief critical discussion
of other sectors such as power and energy private sector development etc.

1.4 Limitations of the study

There is no such work which doesn’t have limitations. The study we have done is no different.
It has some limitations too. We asked sole proprietors questions about their accounting
procedure.
And faced some limitations. These are:

• The scope of analyzing company was limited.

• Some information isn’t easily available to get.

2. Concepts of National Income

To know about the national progress, we have to count our gross national income. So, in our
socio-economical life national income accounting has a great significance. The Economy of
Bangladesh has many dimensions. According to Bangladesh bureau of statistics (BBS) revised
provisional estimate GDP growth (5.83%) was contributed by corresponding growth of
agriculture, industry and service sector which grew by 4.6% and 6.3% respectively, Indicating
satisfactory performance of all the three sectors of the economy. The share of services in GDP
amounted to 49.88% followed by that of industry (29.88%) and agriculture (20.24%) at
constant price. To count this, we can know about overall economic position. So national
accounts have great significance for a country. The Rationale of the study about national
income has great value.

There are various concepts of national income. These are explained below one by one:

(1) Gross National Product (GNP).

2
(2) Net National Product (NNP)/National Income.

(3) Gross Domestic Product (GDP).

(4) National Income at Factor Cost.

(5) Personal Income.

(6) Disposable Personal Income.

2.1 Gross National Product (GNP):

The total value of all final goods and services produced within a nation in a particular year,
plus income earned by its citizens (including income of those located abroad), minus income
of non-residents located in that country. (GNP) is a broad measure of a nation’s total economic
activity. GNP is the value of all finished goods and services produced in a country in one year
by its nationals. GNP is one measure of the economic condition of a country, under the
assumption that a higher GNP leads to a higher quality of living.

How to calculate?

GNP is commonly calculated by taking the sum of personal consumption expenditures, private
domestic investment, government expenditure, net exports, and any income earned by residents
from overseas investments, minus income earned within the domestic economy by foreign
residents. Net exports represent the difference between what a country exports minus any
imports of goods and services.

One useful measure used to assess the size and growth of a country’s economy is the Gross
National Product (GNP). GNP quantifies the size of a country’s economy factoring in both
what is produced within its borders and what is generated by its citizens abroad. GNP is
typically calculated as:

GNP = GDP + Net income inflow from abroad – Net income outflow to foreign countries

Where typically GDP is calculated as:

GDP = Consumption + Investment + Government Spending + Exports – Imports

The goal of GNP is to not only capture the value of the economy within a country’s borders,
which GDP calculates, but to adjust that for the value of a country’s citizens.

3
So, while GDP generates a value based on where income is generates, GNP generates a value
based on the ownership of that income.

GNP per Capita

GNP per capita is a measurement of GNP divided by the number of people in the country. This
makes it possible to compare the GNP of countries with different population sizes.

Formula for Gross National Product:

The general formula used for Gross National Product is:

GNP = GDP + Net factor income from abroad

Where, GDP = Gross Domestic Product

Net factor income from abroad = income earned in foreign countries by the residents of a
country – income earned by non-residents in that country

Why is GNP required?

The Gross National Product is helpful in measuring the contribution of a country’s residents to
the flow of goods and services inside and outside the national territory. Therefore, Gross
National Product is the basic concept of national income accounting.

Categories of Expenditure: There are four main aggregate expenditures that go into
calculating GDP:

1. Consumption Expenditure (C)

2. Investment (I)

3. Govt. expenditures (G)

4. Net Exports (X - M)

• Consumption Expenditure (C): It includes all personal expenditure incurred by the

citizens of a country on durable and non-durable goods in a period of one year.

• Investment (I): It is the total expenditure incurred by firms or households on capital

goods.

4
 • Govt. expenditures (G): It includes all types of expenditure incurred by Federal,
Provincial, and Local Councils on the purchases of goods and services such as national
defense, law and order, street lighting etc.

• Net Exports (X - M): Net exports of goods and services are value of exports minus the
value of imports.

The Formula for Expenditure GDP is:

GDP=C+I+G+(X−M)
where:
C=Consumer spending on goods and services
I= Investor spending on business capital goods
G= Government spending on public goods and services
X=exports.
M=imports
GNP of Bangladesh:

GNI (formerly GNP) is the sum of value added by all resident producers plus any product taxes
(less subsidies) not included in the valuation of output plus net receipts of primary income
(compensation of employees and property income) from abroad. Data are in current U.S.
dollars. GNI, calculated in national currency, is usually converted to U.S. dollars at official
exchange rates for comparisons across economies, although an alternative rate is used when
the official exchange rate is judged to diverge by an exceptionally large margin from the rate
actually applied in international transactions. To smooth fluctuations in prices and exchange
rates, a special Atlas method of conversion is used by the World Bank. This applies a
conversion factor that averages the exchange rate for a given year and the two preceding years,
adjusted for differences in rates of inflation between the country, and through 2000, the G-5
countries (France, Germany, Japan, the United Kingdom, and the United States). From 2001,
these countries include the Euro area, Japan, the United Kingdom, and the United States.

Bangladesh gnp for 2021 was $435.53B, a 13.06% increase from 2020.

Bangladesh gnp for 2020 was $385.22B, a 5.11% increase from 2019.

Bangladesh gnp for 2019 was $366.49B, a 11.1% increase from 2018.

Bangladesh gnp for 2018 was $329.87B, a 23.68% increase from 2017.

5
 Figure 1 Historical data of GNP of Bangladesh

Figure 2 Consumption Expenditure Graph of Bangladesh

6
Figure 3 Investment (I) expenditure of Bangladesh

Figure 4 Net Export data of Bangladesh

7
2.2 Net National Income

In national income accounting, net national income (NNI) is net national product (NNP) minus
indirect taxes. Net national income encompasses the income of households, businesses, and the
government. Net national income is defined as gross domestic product plus net receipts of
wages, salaries and property income from abroad, minus the depreciation of fixed capital assets
(dwellings, buildings, machinery, transport equipment and physical infrastructure) through
wear and tear and obsolescence.

It can be expressed as

NNI = C + I + G + (NX) + net foreign factor income – indirect taxes – manufactured capital
depreciation

Where:

• C = Consumption

• I = Investment

• G = Government spending

• NX = net exports (exports minus imports) = (X – M)

This formula uses the expenditure method of national income accounting.

When net national income is adjusted for natural resource depletion, it is called Adjusted Net
National Income, expressed as

NNI* = C + I + G + NX + Net Foreign Factor Income – Indirect Taxes – manufactured capital

depreciation – Natural Resource Depletion

Natural resources are non-critical natural capital such as minerals. NNI* does not take critical
natural capital into account. Examples are air, water, land, etc.

2.3 Gross Domestic Product (GDP)

GDP is a key concept in the national income. "Gross domestic product (GDP) is the total market
value at current prices of all final goods and services produced within a year by the factors of
production located within a country". If we add up the money value of all the final goods

8
produced both by domestic and foreign owned factors annually in the country and valued at
market prices, it will be called gross domestic product (GDP).

GDP Equation: GDP can be expressed as an equation that sums up all of its components: a
nation’s level of consumption, investment, government spending on goods and services, and
the difference in profit between exports and imports.

GDP = Consumption + Investment + Government Spending on Goods and Services + (Exports

– Imports), which looks like this: Y = C + I + G + (X-M)

Components of GDP:

1. Consumption (C): Consumption represents the sum of goods and services purchased by
citizens—such as retail items or rent—and it grows as more is consumed. It’s the largest
component of GDP. Typically, professionals view a steadily increasing consumption as a sign
of a healthy economy because it signifies consumer confidence in spending versus uncertainty
in the future and lack of spending.

2. Investment (I): Investment refers to any domestic investment, or capital expenditures, in

new assets that will provide future benefits. To invest in business activity, companies spend
money on purchasing equipment, inventory, and building new establishments. The difference
between consumption and investment is the period over which the purchased good or service
provides benefits to its purchaser. Investment is important because higher levels of it increase
productive capacity and boost employment rates.

3. Government (G): Government represents the money (consumption expenditure and gross
investment) spent by the government on goods and services, such as education, transportation,
military, or infrastructure. This spending is funded by taxes and companies or borrowed. To
run at a surplus instead of a deficit, the government needs to collect more money than it spends.
Government spending becomes even more important to consider in the wake of a recession
when consumer spending and business investment dramatically decline.

4. Exports - Imports (X-M): The exports – imports piece of the equation refers to the exports
of goods and services produced within the domestic economy and sold abroad, minus the
imports purchased by domestic consumers. This includes all expenditures by companies
geographically located within the country. If the country’s export (X) is greater than the value
of its imports (M), the net value is positive, and the country has a trade surplus. Likewise, if M
is greater than X, the country is running a trade deficit.

9
Keep in mind that GDP ratios aren’t directly comparable between the United States and other
countries, but the equation, metrics, and information used to calculate GDP are similar across
the globe.

GDP of Bangladesh:

GDP at purchaser's prices is the sum of gross value added by all resident producers in the
economy plus any product taxes and minus any subsidies not included in the value of the
products. It is calculated without making deductions for depreciation of fabricated assets or for
depletion and degradation of natural resources. Data are in current U.S. dollars. Dollar figures
for GDP are converted from domestic currencies using single year official exchange rates. For
a few countries where the official exchange rate does not reflect the rate effectively applied to
actual foreign exchange transactions, an alternative conversion factor is used. The Gross
Domestic Product (GDP) in Bangladesh was worth 416.26 billion US dollars in 2021,
according to official data from the World Bank. The GDP value of Bangladesh represents 0.31
percent of the world economy. The GDP of last 10 years is shown below-

Figure 5 GDP of Bangladesh from 2012 - 2020

10
Figure 6 Share of economic sectors in the gross domestic product (GDP)

11
Differences between GDP & GNP:

GDP GNP

Definition

The value of goods and services produced The value of goods and services produced by
within the geographical boundaries of a the citizens of a nation irrespective of the
nation in a financial year is termed as geographical limits in a financial year is known
GDP. as GNP.

What Does It Measure?

It measures only the domestic production. It measures only the national production.

Emphasis

It emphasizes on the production that is It emphasizes on the production that is achieved

obtained domestically. by the citizens living in different nations.

Highlights

It highlights the strength of the country’s It highlights the contribution of the residents to
economy. the development of the economy

Scale of Operations

Local scale International scale

Excludes

The goods and services that are being The goods and services that are produced by the
produced outside the economy are foreigners living in the country are excluded.
excluded.

12
2.4 National income at factor cost

National Income at factor cost which is also simply called national income means the sum of
an incomes earned by resource suppliers for their contribution of land, labour, capital and
entrepreneurial ability which go into the year’s net production.

Components of National Income:

The main components of national income at factor cost are as follows:

(i) Compensation to employees: It is the largest component of national income. It consists of

wages and salaries paid by the firms to the workers for their labor services.

(ii) Interest: Interest is the payment for the use of funds in a year. The payment is made by
private businesses to households who have lent money to them.

(iii) Rent: Rent is all income earned by individuals for the use of their real assets such as
building, farms etc.

(iv) Profit: Profit is the amount which is left after compensation to employees, rent, and interest
has been paid out. The sum of compensation to. employees, interest, rent and profit is supposed
to equal national income at factor cost.

2.5 Personal Income

The total of factor income is the national income. In other words, it is the money that people
earn through wages, rent, interest, and profits by doing productive work. Contrarily, personal
income refers to all money that people actually receive in a given year. It contains money that
people get but isn't always their own. For instance, households get social security and welfare
payments, but because these are transfer payments, they are not included in the national
income. Similar to this, individuals are given income under national income accounting that
they do not actually receive. Unspent profits, employee social security contributions, corporate
income taxes, etc. are examples of items that contribute to national income but are not received
by individuals. Hence, they are to be deducted from national income to estimate the personal
income.

Formula for Personal Income: PI = Nl + Transfer Payments - Corporate retained earnings,

income taxes, social security taxes

13
Disposable personal Income = Consumption + Saving

Bangladesh Annual Household Income per Capita reached 602.549 USD in Dec 2016,
compared with the previous value of 439.888 USD in Dec 2010.

Bangladesh Annual Household Income per Capita data is updated yearly, available from Dec
2000 to Dec 2016, with an averaged value of 358.920 USD.

The data reached an all-time high of 602.549 USD in Dec 2016 and a record low of 259.538
USD in Dec 2000.

Disposable Personal Income in Bangladesh remained unchanged at 65339.96 BDT THO in

2020 from 65339.96 BDT THO in 2019

CEIC calculates Annual Household Income per Capita from Monthly Average Household
Income per Capita multiplied by 12 and converts it into USD. The Bangladesh Bureau of
Statistics provides Average Household Income per Capita in local currency. Bangladesh Bank
average market exchange rate is used for currency conversions.

2.6 Disposable Income:

Disposable Income is the money that is available from an individual’s salary after he/she pays
local, state, and federal taxes. It is also known as disposable personal income or net pay. The
disposable income of a household includes earnings plus unemployment benefits and capital
income.
Disposable income is one of the main parameters in determining consumer spending. It is also
one of the most important factors for determining demand. Disposable income indicates the
amount of goods and services that can be purchased at different prices over a particular period.
It implies that the amount of disposable income available to someone can help determine the
amount of money spent on goods and services.

Formula for Disposable Income

Disposable Income = Personal Income – Personal Income Taxes

Suppose a family’s aggregate income is Tk 150,000, along with an effective tax rate of 27%.
The disposable income for the family will be Tk109, 500 [Tk150,000 – (27% x Tk 150,000)].

14
Significance of Disposable Income in Bangladesh economy: Disposable income is used by
analysts to measure the state of an economy. It can also be used to measure the households’
financial reserves. It helps economists to measure the savings and spending rates of the
households. Disposable income is used to derive several economic indicators and measures
such as discretionary income and personal saving rate.

When the disposable income has accounted for payments of all necessities – such as food,
health insurance, and mortgage – the result is the discretionary income. The discretionary
income is a part of disposable income after payments of necessities have been made. Income
earners can save or spend the discretionary income as he/she wishes.

In the event of financial pressure, such as economic downturn and job loss, discretionary
income will drastically reduce. A percentage of disposable income – the personal savings rate
– goes into savings for later use or retirement.

The federal government uses the disposable income to determine the amount of money to be
withheld from the wages of an individual for payments to third parties or back tax payments.
The disposable income is used to determine the amount of money to be withheld from the
paychecks of income earners.

The portion of disposable income that could be withheld can be a maximum of 25% of an
individual’s disposable income or the amount that results in an individual’s weekly income to
be greater than 30 times the minimum federal income, whichever is lower. While calculating
the disposable income, the federal government also deducts the premiums of health
insurance and contributions from involuntary retirement plans from the gross income.

Disposable Personal Income in Bangladesh is expected to reach 69587.00 BDT THO by the
end of 2022, according to Trading Economics global macro models and analysts’ expectations.
In the long-term, the Bangladesh Disposable Personal Income is projected to trend around
74458.00 BDT THO in 2023 and 79670.00 BDT THO in 2024, according to our econometric
models.

15
 Figure 7 Disposable income of Bangladesh

3. Methods of measuring national income

There are three ways to evaluate a nation's national income. The outcome is the same.

These approaches are:

(i) The Product Method.

(ii) The Income Method.

(iii)The Expenditure Method.

3.1. Product/Value Added Method

In this method, national income is measured as a flow of goods and services. We calculate
money value of all final goods and services produced in an economy during a year. Final goods
here refer to those goods which are directly consumed and not used in further production
process.

Goods which are further used in production process are called intermediate goods. In the value
of final goods, value of intermediate goods is already included therefore we do not count value
of intermediate goods in national income otherwise there will be double counting of value of
goods.

The money value is calculated at market prices, so sum-total is the GDP at market prices. GDP
at market price can be converted into by methods discussed earlier.

16
Adding up the value of all the final goods and services produced in the nation over the course
of a year is how the product approach measures national income. Here, we focus on different
economic sectors and total up all their annual production. The following major industries'
production values are added up:

✓ Agriculture

✓ Manufacturing

✓ Construction

✓ Transport and Communication

✓ Banking

✓ Administration and Defense and

✓ Distribution of income

Precaution of Product/Value-Added Method

➢ Intermediate goods must not be added to the National Income as these are already added
to the value of final goods. If included again, it will result in double counting.

➢ Dealings (sale and purchase) of second-hand goods should not be included in this
calculation.

➢ Any changes in the inventory must be included in this calculation. Net increase in
inventory stocks is involved in national income calculation as a part of capital
formation.

3.2 Income Method

National income is calculated using this method as a flow of factor incomes. Labor, capital,
land, and entrepreneurship are the four main components of production. Labor is compensated
with wages and salaries, money is compensated with interest, the land is compensated with
rent, and entrepreneurship is compensated with profit.

Furthermore, certain self-employed individuals, such as doctors, lawyers, and accountants, use
their own labor and capital. Their earnings are classified as mixed income. NDP at factor costs

17
is the total of all these factor incomes. National Income is calculated as a flow of income in
this case.

NI can be calculated as follows:

Employee compensation + Operating surplus (w + R + P + I) + Net income + Net factor income

from overseas = Net national income.

Where,

Wage stands for wage and salaries

R stands for rental income.

P stands for profit.

I stand for mixed income.

(i) Wages: It is the largest component of national income. It consists of wages and salaries
along with fringe benefits and unemployment insurance.

(ii) Rents: Rents are the income from properly received by households.

(iii) Interest: Interest is the income private businesses pay to households who have lent the
business money.

(iv) Profits: Profits are normally divided into two categories.

(i) Profits of incorporated businesses and

(ii) Profits of unincorporated businesses (sole proprietorship, partnerships, and producers,

cooperatives).

Precaution of Income Method

✓ Transfer payments such as gifts, donations, scholarships, indirect taxes should not be
included in the estimation of national income.

✓ Illegal money earned through smuggling and gambling should not be included.

✓ Windfall gains such as prizes won, lotteries etc. is not included in the estimation of
national income.

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3.3 Expenditure Method

The expenditure method is a system for calculating gross domestic product (GDP) that
combines consumption, investment, government spending, and net exports. It is the most
common way to estimate GDP. It says everything that the private sector, including consumers
and private firms, and government spend within the borders of a particular country, must add
up to the total value of all finished goods and services produced over a certain period. This
method produces nominal GDP, which must then be adjusted for inflation to result in the real
GDP.

The Formula for Expenditure GDP is:

NI=C+I+G+ (X−M)

Where,

C=Consumer spending on goods and services

I=Investor spending on business capital goods

G=Government spending on public goods and services

X=Exports

M=Imports

Precaution of Expenditure Method

✓ The expenditure on second-hand goods should not be included as they do not contribute
to the current year's production of goods.

✓ Similarly, expenditure on purchase of old shares and bonds is not included as these also
do not represent expenditure on currently produced goods and services.

✓ The transfer payments do not add value to the economy of a nation; hence, they should
not be included.

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4. Circular Flow of National Income of Bangladesh’s Economy
A circular flow of income is an economic model that describes how the money exchanged in
the production, distribution, and consumption of goods and services flows in a circular manner
from producers to consumers and back to the producers.

A simple circular flow model of the macroeconomics containing two sectors (business and
household) and two markets (product and factor) that illustrates the continuous movement of
the payments for goods and services between producers and consumers. The payment flow
between the two sectors and two markets is conveniently divided into four segments
representing consumption expenditures, gross domestic product, factor payments, and national
income.

Explanation of Circular Flow of National Income

In a two-sector economy, there are business firms which produce goods and services. The other
sector is households which supplies their factors services to the firms and also buy goods and
services produced by them. The households supply the economic resources to the firms and
receive payments in terms of money. There is, thus, a flow of money corresponding to the flow
of economic resources. These money incomes are spent by households on goods and services
produced by the firms. With this the money comes back to the firms. This circular flow of
income in fact is the mutual dependence of the two sectors of modern economy.

Figure 8 Diagram of Circular Flow of Income

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In the figure, it is shown that the economy consists of two sectors. Such as, households and
business. In the upper top of the figure, the resources such as land, capital, labor and
entrepreneurial ability flow from households to business firms as indicated by the arrow mark.
In opposite direction to this, money flows from business firms to the households as factors
payments such as rent, wages, interest and profit.

In the lower pipe line, money flows from households to firms as consumption expenditure
made by the households on the goods and services produced by the firms. The flow of goods
and services is in opposite direction from business firms to households. We, thus, find that
money flows from business firms to households as factor payments and then it flows back from
households to firms. Thus, there is in fact a circular flow of income. This circular flow of
money or income continues year after year. This is how the economy functions.

4.1 Difficulties in Measuring National Income in Bangladesh

National income figures denote the economic progress of an economy. They also enable to
analyze and understand the significance of each sector in an economy. They also reveal the
trends in the concentration of economic power and inequalities between the rich all the poor.
There three methods for calculating national income. These are production method, income
method and expenditure method. There are many involved in measuring national income. They
are mentioned as below:

Non-monetized sector: Goods and services which are sold and bought in non-monetized
sector are not included in national income. Non-monetized sector is prevalent in several under
developed countries. Major portion of transaction of goods and services take place in this
sector. Such transactions are not recognized and registered by the state authorities. Mere
calculation of the value of goods and services in monetized sector is useless in measuring
national income figures.

Unproductive activities: The governments of modern states have been spending large
amounts on some free services like parks, libraries, recreation, cultural activities, old-age
pensions, orphan houses, child care centers, Maternity homes etc. This is a problem which we
have to consider. Since these services yield no income, some considered that they have to be
excluded in national income. But many experts are of the view that all Government expenditure
should be included in measuring national income.

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Problems due to changes in Market prices: Gross national income figures increase due to an
increase in the market prices of goods and services. But the real national product remains the
same. Sometimes it falls due to inflationary effects. So, this problem arising due to the
fluctuations in market prices has to be solved while calculating national income. For this
national income estimates are to be made on the basis of constant prices during a year.

Transfer earnings: income received by individual’s productive work like pensions,

unemployment relief funds etc. come under the category of transfer earnings. Such transfer
earnings are excluded from national income.

Statistical data: Another problem of national income estimates refers to the availability of
accurate statistical data and information. Especially in underdeveloped counties, statistician
who supervise the calculation of National income figures face several problems in securing
correct and accurate information about the output, savings, investment, consumption, income
and expenditure of individuals in different spheres.

Income of foreign companies: Another problem relates to the inclusion of income of foreign
companies in measuring national income. According to the opinion of International Monetary
Fund Experts, Foreign Companies’ income has to be included in the national income of those
countries where production is organized. But the profits obtained by the branches of foreign
companies should be included in the national income of foreign countries.

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5. Description & Analysis of data
If we want to describe about national income accounting first, we get to describe about
agriculture industry human resource. Table one shown the production increases but the table -
4 shows the conurbation the agriculture is decreasing but growth rate is increasing, for this
reason sector share of GDP of agriculture are increasing. On the other hand, manufacturing
production are increasing and sectorial growth rate are increasing as well. Moreover, industrial
contribution is increasing from the service sector we can see it become most important sector
in national income. However, contribution of the service sector weathered such fluctuation and
remained unchanged at 49-50 % during the same period.

By analysis the sect oral growth rate within the period it has been observed that unit FY 2008-
09 industry sector should as increasing trend of growth compared to agriculture in FY 2009-10
the agriculture and service sector were expected to grow by 0.55% the growth of the industry
sector would decline by 0.45 %. The remittances from expatriate Bangladeshi workers stood
at US$ 9689.16 million reflecting 22.42 % rise over the previous year, in 2009-10 remittance
shot us to US$ 10987.4 Million reflecting 13.4% rise over the preceding year. The number of
remittances in rearms of GDP and export earnings have also increased over the year. In FY
2003-04 remittances as percent of GDP and export stood at 5.98 % and 44.47 % respectively.
In FY 2009-10 remittances as present of GDP and export were 11.13% and 67.80%
respectively that show.

6. Findings
From our study of national income accounting, we find several sectors contribute in national
income. Form the data we find the contribution of service sector have been increasing day by
day and contribution of the agriculture have been decreasing. From the analysis of the data, we
find the picture of overall economic. Pervious time our main income sector is agriculture but
now. Industry and service take the place of agriculture. From, the data we find people of our
country have the tendency to join industrial sector and most of them have trend to go abroad.
That way the service sector is become the main sector of our economic.

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6.1 Conclusion

This report was aimed at evaluating the performance of “National Income” the performance of
the investment forums has been evaluated with respect to different performance dimensions
such as Profitability, risk, possibility, operating efficiency etc. as part of the evaluation, the
strategies followed by the different country’s investors have also been analyzed. After the
evaluation is completed, comments have been made on the performance of the direct foreign
investors in the country to country on the basis of the result found in the analysis. By observing
the different possibilities ratios it is observed that the country to country is performing well to
increase its profit with a positive fund, Similarly the efficiency of the direct foreign investment
, it is observed that investment foreign country is performing efficiently increasing with
positive trend in Bangladesh, The employee productivity in terms of net operating income the
overall investment system of the foreign country are also satisfactory and finally the system is
satisfactory in Bangladesh, By summing these analyses we can say they the country perform
will in terms of profitability & possibilities and regulatory point of view and with the pace of
the passage of time. At present the investment opportunity in our country is facing not only the
indigenous investment competition lent also it is merging toward global investment
competition over time. For the question of survival, management, efficiency, capital adequacy
and better diversified services are regarded as the priority concerns for the opportunities of the
direct foreign investment in Bangladesh.

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