National Income

The National Income is the total amount of income accruing to a country from economic

activities in a years’ time. It includes payments made to all resources either in the form
of wages, interest, rent, and profits.

GDP:  produced measures the monetary value of final goods and services—that is, those that
are bought by the final user in a country in a given period of time. GDP is typically calculated on
an annual basis, it is sometimes calculated on a quarterly basis as well. GDP provides an
economic snapshot of a country, used to estimate the size of an economy and growth rate. GDP
can be calculated in three ways, using expenditures, production, or incomes. It can be adjusted
for inflation and population to provide deeper insights.

GNP: it refers to the total value of all the goods and services produced by the residents and
businesses of a country, irrespective of the location of production.
It takes into account the investments made by the businesses and residents of the country, living
both inside and outside the country. It also takes into account the value of the products produced
by the industries of the domestic origin. GNP does not take into consideration the incomes
earned by the foreign nationals in the country or any products produced by a foreign company in
the manufacturing units in the country.
Y = C + I + G + X + Z Or GNP =Consumption expenditure + Investment + Government expenditure + Net exports + Net income

Four Sector economy:  four sector economy provides a realistic picture of the circular flow
in an economy. Four sector model studies the circular flow in an open economy which
comprises of the household sector, business sector, government sector, and foreign sector.
(a) Household Sector:
Receipts
The household sector receives factor income in the form of rent, wages, interest, and profit from
the business sector. It also receives transfer payments from the government sector.
Payments
The income of the household sector flows into the business sector, government sector and capital
markets in the form of consumption expenditure, taxes and savings respectively.
(b) Business Sector:
Receipts
The principle receipts of the business sector constitute of income from the sale of goods and
services, income from exports, and borrowings from the capital market.
Payments
Factor payments, import payments, and savings constitute the principal payments from the
business sector to the household sector, government sector, foreign sector and the capital market.
(c) Government Sector:
Receipts
The major source of income for the government sector include the taxes paid by household and
business sector.
Payments
The government sectors make payments to different sectors in the form of transfer payments,
subsidies, grants, etc. It pays to the business sector in return for the goods purchased, makes trf.
pmt like pension funds, scholarships, etc.
(d) Foreign Sector
Receipts
The foreign sector receives income from the business sector in return for the goods and services imported by
the latter.
Payments
Foreign sectors need to make payment to the business sector from where imports have been made.