NATI ONALI NCOME

Thi si st het ot al i
ncomer ecei v edbyt hepr ov ider s/ owner soft hef act orsofpr oduct ioni nagi vencount ryov er
agi v
ent i
meper i
od.
Ter msusedi nnat ionali ncome
(i)Gr ossDomest icPr oduct( GDP) .Thi si st het ot al monet ar yvalueofal lgoodsandser vicespr oducedi na
count rydur ingapar ticul ary ear .Suchgoodsandser vicesmusthav ebeenpr oducedwi thint hecount ry.
(ii
)NetDomest icPr oduct( NDP) .Thi si st heGDPl essdepr eciation.
Depr eci ationi st hel ossi nv al ueoft heasset ssuchasmachi nesusedi nthepr oduct ionofgoodsandser vi
ces.
(ii
i)Gr ossNat ional Pr oduct( GNP) .Thi smeasur est het ot al monet ar yv alueofal lthegoodsandser vices
pr oducedbyt hepeopl eofacount ryr egar dl essofwhet hert heyi norout sidet hecount ry.Ittakesi ntoaccount
ex por tsandi mpor ts.Thedi f f
er encebet weenex por t
sandi mpor tsi scal l
ednetFact orI ncomef rom abr oad.
GNPt her ef or ei st hesum ofGDPandnetf act ori ncomef rom abr oad.
(iv)NetNat ionalPr oduct( NNP) .Thi sr ecogni z est helossi nv alueoft hecapi tal usedi nthepr oduct ionof
goods.Capi tal her er ef erst ocapi t
al goods.NNPi sthedi fferencebet weenGNPandt hedepr eciat i
on.
(v)Percapi tai ncome.Thi si st heav er agei ncomeperheadpery eari nagi v encount ry.Itisal sot henat ional
i
ncomedi v idedbyt hepopul at i
onoft hecount r
y .
CI RCULARFLOW OFI NCOME
Thisi st hecont i
nuousmov ementofi ncomebet weent hehousehol ds( prov i
der soff actor sofpr oduct ion)
andt hef irms( producer sofgoodsandser v i
ces) .
Thef act orsofpr oduct i
onar er eceiv edf rom househol ds.
Thef irmspayt her ewar dsofsuchf act orst ot hehousehol ds( ex pendi turet ot hef irmsandi ncomet ot he
househol ds) .
Thehousehol dsi nt ur nuset hei ncomet obuyt hegoodsandser vicespr oducedbyt hef irms( ex pendi tureto
househol dsandi ncomet of irms) .
Assumpt i
ons/ feat ur esofci rcul arf lowofi ncome
(i)Exi st enceoft wosect or sonl y.Itisassumedt hatt heeconomyhasonl yt wosect or st hati shousehol dsand
firms.Thehousehol dspr ov idet hef act orsofpr oduct i
onwhi l
efirmsar einv olvedi nt hepr oduct ionofgoods
andser v i
ces.
(ii
)Tot al spendi ngbyhousehol ds.I ti sassumedt hatt hehousehol dsspendal l theiri ncomeont hegoodsand
ser vicespr oducedbyt hef i
r msi .e.nosav ings.
(ii
i)Tot al spendi ngbyt hef irms.I tisassumedt hatt hef i
rmsspendt hemoneyr ecei v edf rom t hesal eof
goodsandser v i
cest opayf ort her ewar dsofpr oduct ionf act ors.
(iv)Lackofgov ernmenti nt er vent ion.Thegov ernmentdoesnoti nf luencehowt hef irmsandhousehol dscar r
y
outt hei ract iv i
ties.Suchi nt erv ent i
onsar ei nt hef orm oft ax es,pricecont r
ol samongot her s.
(v)Cl osedeconomy .Ex por tsandi mpor tsdonotex i
sti nsuchaneconomy .
Fact or saf fect i
ngt heci rcul arf lowofi ncome
Thef act orscanei therl eadt oi ncr easei ni ncomeandex penditur e( injections)orl eadt oar educt i
oni nt he
vol umeoff low( wit hdr awal s).
Thef act or si ncludet hef ollowi ng:
(i)Sav ings.Thi st akespl acewhent hehousehol dsdonotspendal l theirincomeont hepur chaseofgoods
andser v i
ces.Thi sr educest hei ncomet ober ecei vedbyf irmshencesav ingsi sawi thdr awal from t heci rcular
flowofi ncome.
(ii
)Taxat ion.Taxat ionr educest heamountofmoneyav ailabl eforspendi ngt her efor ei tisa
wi thdr awal /leakagef rom t heci rcularf lowofi ncome.
(ii
i)Gov ernmentexpendi t ur e.Thegov ernmentmaybuygoodsf rom t hef i
rmsorpr ov idesubsi dies.Thi swi l
l
transl at ei nt oani nject ioni ntot heci rcul arf l
owofi ncome.
(iv)Inv est ment s.Whenf irmsputmor ecapi tal i
nt ot hepr oduct i
on, out putwi l
li
ncr easehenceani ncreasei n
i
ncome( inject ion) .
(v)I mpor ts.Whengoodsandser vi
cesar eboughtf rom ot hercount ries, moneywi llbespenthencear educt ion
i
nt heci rcul arf lowofi ncome( wi thdr awal ).
(vi)Expor ts.Thr oughexpor ts, acount ryi sabl et or eceiv emoneyf rom ot hercount ries( i
nject i
ons)
Inject ions
(i)Inv est ment s
(ii
)Gov ernmentspendi ng
(ii
i)Expor ts
Wi thdr awal s
(i)Sav i
ngs
(ii
)Taxat ion
(ii
i)Impor ts
APPROACHESUSEDI NMEASURI NGNATI ONALI NCOME
(i
)Expendi tur eAppr oach
Nat ional incomei sar riv edatsummi ngexpendi t ur eonal l fi
nalgoodsandser vices( thathav er eachedt hef i
nal
stageofpr oduct ion) .Suchexpendi turei sdi videdi nt o:
a)Ex pendi tur eonconsumergoods( C)
b)Ex pendi tur eoncapi tal goods( I)
c)Ex pendi tur ebygov ernment( G)
d)Ex pendi tur eonnetexpor ts( X–M)
Ther ef or enat ional i
ncome=C+I +G+( X–M)
Pr obl emsassoci at edwi thexpendi tur eappr oach
Lackofaccur at er ecor dspar t i
cul ar l
yi nt hepr iv atesect or
Appr ox i
mat i
onofexpendi tur eoft hesubsi stencesect or
Di fficul tyi ndi ffer ent iat ingbet weenf inal expendi tureandi ntermedi at eex pendi t
ur e
Doubl ecount i
ngmayexi st
Fluct uat ingexchanger at esmaycausepr obl emsi nt hev aluati
onofi mpor tsandex por ts.
(ii
)I ncomeappr oach
Int hi smet hod, t henat ional incomei sar rivedatbysummi ngal lthemoneyr ecei v edbyt hosewhopar ti
cipate
i
nt hepr oduct ionofgoodsandser vices.
Suchi ncomesar ei nt hef or m ofr ewar dst ot hepr oduct ionfact or s( wages, rent, interestandpr of i
ts)
.
Publ ici ncomei sal sot akeni nt oaccounti .e.i ti st hei ncomer ecei vedbyt hegov er nmentf rom its
i
nv est ment s( Par ast at als, joi ntv ent ur es) .
Tr ansf erpay ment sar eex cl udedsi ncet heyr epr esentar edistr
ibut i
onofi ncomesf rom t hosewhohav e
ear nedt hem t ot her eci pi ent ’
se. g.Nat ional i
nsur anceschemes.
Pr obl emsr elat edt ot hismet hod
a)Det er mi nat ionofwhatpr opor tionoft r ansf erpay ment sconst itutei nt hei ncomeofacount r
y.
b)I naccur at edat amayexi stsi ncebusi nesspeopl emaynott ellthet ruthaboutt hei rincomei nordertoev ade
tax.
c)Pr icef luct uat ionsmaymakenat i
onal incomedet ermi nationdi fficul t
.
d)I ncomef rom i llegal act ivitiesi snotcapt ur ed.
e)Val uat ionofi ncomef rom subsi stenceeconomymaybedi ff
icul te. g.housewi ves.
Assi gnment :Readandmakeshor tnot esonOut putappr oach( ref ert oInv ent orbookt hr eepages65–66) .
USESOFNATI ONALI NCOMESTATI STI CS
Indi cat or sofst andar dsofl iving.I ft henat ional incomei sequi tabl ydi stribut ed, thent hest andar dsoflivi
ng
wi l
l behi gh.
Measur ingeconomi cgr owt h.Thest at isticsofoney earar ecompar edwi thpr eviousy eart oshowwhet her
ther ei si mpr ov ementornot .
Int ercount rycompar i
son.Theyar eusedt ocompar et heeconomi cwel fareamongcount rieshenceknowi ng
whi chcount ryi sbet terof fandbyhowmuch.Howev er, thef oll
owi ngchal lengesmaybef acedwhencar ryi
ng
thecompar isons: di f
fer enti ncur r enci es, di fferentgoodsandser vices, dispar i
t yini ncomedi stri
but i
onand
differ encei nt ast esandpr ef erences.
Inv est mentdeci sions.Theyassi stt hegov er nmentandot heri nv est orst oknowt hesect or sto
putt hei rmoney .Thest at ist i
cspr ov ider el ev anti nf or mat ionconcer ningt heper formanceofeachsect or.
Basi sofequi tabl edi st ribut i
onofi ncome.Thest at isticscanbeusedt ospr eadi ncomet ot hehandsof
maj or ityoft heci tizensi ncaseaf ewi ndi v i
dual scont rol theeconomy .
Pl anni ngpur poses.Thest at isticswi llshowt hecont ribut i
onofeachsect ort hushel pingt hegov er nmentin
allocat ingt hef undst ot hev ar i
oussect or s.
Fact or swhi chi nf luencest hel ev elofnat ional income.
Quant ityandqual it
yofpr oduct ion.I ft hef act or sar emor einter msofquant it
yofgoodqual i
ty,
theout put
wi l
l behi ghhencei ncr easi ngi nnat i
onal income.
St at eoft echnol ogy .Acount r ywi thhi ghl ev el oft echnol ogywi ll producegoodsi nl argev olumeshencehi gh
nat ional i
ncome.
Pol i
tical stabi lity .Count r ieswhi char er elat ivel yst abl epol iti
callyex periencehi ghpr oduct ionhencehi gh
nat ional i
ncomel ev el.
Accur acyofaccount ingsy st ems.I ft hemet hodsusedt ogatherdat aar eaccur at e, thent heov erall
stat ist i
cal figur eswi l
l theaccur atehencer eliabl e.
Pr opor tionoft hesubsi st encesect or .Subsi st encesect or’sout puti snotnor mal lyincl udedi nthest ati
sti
cal
fi
gur es.I fitr epr esent sal ar gepr opor tion, ther ef or et henat i
onal i
ncomel ev elwi llbel ow.
NB.Forot herf act or sr ef ert oI nv ent orbookt hr eepages68–69.
Reasonswhyhi ghpercapi tai ncomei snotani ndi cat orofabet terl i
vingst andar di nacount ry
 Statist i
calpr oblems.Thecol lectionoft henat i
onal i
ncomedat amaybei naccuratemeani ngt hatthe
national incomef i
gur esmi ghtbei ncorrecthencewr ongpercapi t
ai ncome.
Changesi nmoneyv alue.Ift hecur r
encyhasbeendev alued,therecanbechangei nt hevalueofmoney
wi t
houtnecessar i
lyr epresent inganychangesi nt hewel fareoft hepeopl e.
I
ncomedi stri
but i
on.Thepercapi tamaybehi ghev enthought heincomei sinthehandsofv er yfewpeopl e
thusi ti snotar epresent ativeoft hemaj ori
ty.
Nat ur eofpr oduct s.I fthepr oduct sarenotmeantt osat isf
yimmedi atewant soft hepeople,thenan
i
ncr easei npercapi tai ncomemaynotl eadt oahi ghereconomi cwel f
are.
Peopl es’ har dwor kandat ti
t ude.I ncreasednat i
onal i
ncomemaymeanl esssleepandmor ewor ries.Peopl
e
hav enot imet oenj oywhatt heypr oduceandt heirwel faremaybel owdespi tether i
sei nnati
onal
i
ncome.
Soci al cost s.Peopl emaymi gratef r
om r uralareast ourbanar easst r
aini
ngf amilyrelati
onshipswhi lean
i
ncr easei ni ndust ri
esmaycr eat epol l
ution,congest i
onandot herenv i
ronment aldisrupti
ons.
Quest i
ons
1.St atef ourpr oblemsencount eredi ncompar ingst andar dsofl i
vingi ndif
ferentcount ri
esusingnat i
onal
i
ncomest atisti
cs
2.Usi ngadi agram, descr i
bet heci rcularflowofi ncome.
3.Ex pl ainf ivef actor sthatmayi nfl
uencet helev el ofnationalincomeofacount ry
4.Out l
inef ourl imitationsofexpendi t
ureappr oachusedi nmeasur ingnat i
onal i
ncome.
5.Ex pl ainf iver easonswhyhi ghpercapi t
aincomemaynott r
anslatet obetterli
vingst andar
dsi nacount r
y.
6.Descr i
bef ivefact orst hataf fectt hecircularflowofi ncome.