Module 2: Overview of

Macroeconomics
Dr. Ajay Massand
 National Income- Concepts and
Measurements

 National Income
 Measures of national income
 GVA, GDP, NDP, GNI, NNI, etc.
 National Income

 The term National Income is used to measure economic performance of an economy over
short or long periods.
 It refers to the flow of total factor earnings available to purchase net flow of goods and
services in the economy during a given period of time.
 In common parlance the aggregate income earned by all people from all sources in one
year time is called as national income of a country.
 Measurement of National Income

Product Method Income Method

Expenditure Method
 1. Product Method
 The product method is also known as Value Added Method or Simple Output Method.
 It measures Net value of all commodities and services produced in various sectors of the
economy during a year.
 The economy of a country is divided into different sectors such as – agriculture, manufacturing,
trade, transport, communication, mining, construction, banking and insurance, electricity, gas and
water supply so on.
 In this method estimated only final goods and services are included and intermediate goods are
excluded to avoid double counting.

 https://www.rbi.org.in/Scripts/PublicationsView.aspx?id=18994
 2. Income Method

This method is also called Factor Income Method. Factor Share Method. Income Distributed Method or
National Income by Distributive Shares Method.
 This method, we calculate national income from distribution side. In other words, this method measures
the national income after it has been distributed and appears as income earned or received by individuals
of the country.
 Various factors of production received rewards in terms of rent to land, wages and salaries to employees,
profit to entrepreneurs, interest on capital.
 GNP = {R+W+I+P} + {X - M} + {R - P }
GNP = Wages & salaries + Rents + Interests + Dividends + Undistributed Corporate Profits + Mixed incomes +
Direct Taxes + Indirect Taxes + Depreciation + Net income from abroad.

Service sectors
1. Transport, communication & storage.
2. Electricity, gas, & water supply.
3. Banking, finance, insurance & trade.
4. Real estate.
5. Public administration & defense
 3. Expenditure Method

National income under this method by adding up all the expenditure made on the goods and services
during the specific period.
1. Personal Consumption Expenditure (C)
2. Domestic Private Investment (I) – plant and
machinery
3. Net Export of Goods and Service (X – M)
Foreign Investment
4. Government Expenditure (G) – Money spend by govt. on purchase of G/S.
Y = {C+I+G} + {X -M} + {R - P }
GNP = Consumption expenditure + Investment expenditure + Government expenditure + Net foreign
investment
3. Expenditure Method
 GDP at Factor cost
(GST, Registration tax, Excise
duty, Production tax, etc.) -
Subsidiaries At market price

Depreciation

R-P
GNP
workers' remittances,
donations, tax payments,
foreign aid and grants.

private final consumption

expenditure (PFCE) 
  Receipts – Payments (R-P)

 Private Remittances-private transfers’ by Indian nationals.

 Interest on External Loans- net Interest paid by India (Govt.)
 External Grants- the net outcome of the external grants i.e., the balance
of such grants which flow to and from India.
 International Measures

 GDP- It is used by the IMF/WB in the comparative analyses of its member

nations.
 GNP- This is the ‘national income’ according to which the IMF ranks the
nations of the world in terms of the volumes—at purchasing power parity
(PPP).
 Nominal and Real GDP

 When GDP is measured on the basis of current price, it is called GDP at current prices or
nominal GDP.
 On the other hand, when GDP is calculated on the basis of fixed prices in some year, it is
called GDP at constant prices or real GDP.