Macroeconomics :

National Income
DR. TINNEKE HERMINA, S.T., M.SI
AGENDAS

INTRODUCTIO CONCEPT OF
1 2 NATIONAL INCOME
N

METHODS OF IMPORTANCE AND

MEASURING 3 4 CHALLENGES OF
NATIONAL INCOME MEASURING NI
 INTRODUCTION : DEFINITION
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National income measures the total value of goods 2
& services produced within theeconomy during the 0
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course of a year Ipsum Ipsum Ipsum Ipsum 0
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Series 1 Series 2 Series 3
National income is the money value of all goods Series 1 Series 2 Series 3
and services produced in a country during a year
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 CONCEPT OF NATIONAL
INCOME

• Gross domestic product

• Net domestic product
• Gross national product
• Net national product
• National income at factor cost
• Personal income
• Disposable personal income

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GROSS DOMESTIC PRODUCT
1.2 15 15
20 20
25

40 15 15

25 50 50

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

GDP is the aggregate money value of the all final value of the goods and services produced in the

domestic territory of a country during an financial year.

GDP = Consumptions expenditure + Investment Expenditure + Government Expenditure

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Net Domestic Product
1.2 15 15
20 20
25

40 15 15

25 50 50

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

NDP refers to the market value of all final goods and services turned out in an company during a given

period of time after making allowance for depreciation charges.

NDP = GDP – Depreciation charges

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 GROSS NATIONAL PRODUCT
1.2 15 15
20 20
25

40 15 15

25 50 50

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

GNP is defned as the total market value of all final goods and services produced in a country in an

year’s time.

GNP = GDP + X-M

X = Income earned by national abroad
M = Income earned by foreigners in the given country 7
NET NATIONAL PRODUCT
1.2 15 15
20 20
25

40 15 15

25 50 50

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

NNP is the market value of the net output of final goods and services produced by the country during
the relevant income period.

NNP = GNP – Depreciation Charges

NNP = NDP + X-M
NNP gives idea net increase in total production of the country 8
NATIONAL INCOME AT FACTOR COST
1.2 15 15
20 20
25

40 15 15

25 50 50

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

NI at factor cost refers to all incomes earned by resource owners (factors of production) for their
contribution to the production of different goods & services in a year

NI = NNP – Indirect Taxes + Subsidies

This concept throws light on the distribution side of national output
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 PERSONAL INCOME
1.2 15 15
20 20
25

40 15 15

25 50 50

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

PI is the sum of all incomes that received by the individuals and households in a during one year.

PI = NI – Corporate Income Taxes – Undistributed profits – Social Secuurity contributions + Transfer Payments

This concept help us know the potential purchasing power of the people and households and the welfare of
consumers in society 10
DISPOSABLE PERSONAL INCOME
1.2 15 15
20 20
25

40 15 15

25 50 50

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

DPI Is that of personal income which is left after the payment of personal direct taxes

DPI = PI – Personal direct taxes

DPI = Consumption + Saving
This concept indicates the purchasing power in the hands of the people and their actual living standards
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METHODS OF MEASURING NATIONAL INCOME

PRODUCT METHOD 1

INCOME METHOD 2

EXPENDITURE METHOD
Y= C+I+G+(Export-Import)
3

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IMPORTANCE OF NATIONAL INCOME
10 10
15
40
50
40 40
15
50
Shows the contribution
Indicates the living made by various sectors
standars of the people to NI

Know the production Know wheter a country is Know the purchasing

performance and 10 growing, stagnant, or power of money
25
achievements declining
20
50

70 25

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IMPORTANCE OF NATIONAL INCOME
10 10
15
40
50
40 40
15
50
Know relative roles Valuable guide to
played by public & formulate economic
private sectors policies

Contains figures of Helps central Reveal cyclic behavior of

consumption, savings, 10 government to decide an economy and also
25
investments, imports & amount of grants-in-aids helps in forecasting
20
exports to different satate
50
governments
70 25

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CHALLENGES IN MEASURING NATIONAL INCOME

1.2 15 15
20 20
25

40 15 15

25 50 50

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

THEORITICAL OR CONCEPTUAL DIFFICULTIES :

• Definition of the term “nation” in National income
• Choice of method for measuring the national income
• Only good and services having monetary value included
• Stage at which national incomes is estimated

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CHALLENGES IN MEASURING NATIONAL INCOME

1.2 15 15
20 20
25

40 15 15

25 50 50

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

PRACTICAL OR STATISTICAL DIFFICULTIES :

• Non availability of data
• Absence of trained personnel
• Absence of proper records
• Existence of non-menetized sector
• Absence of occupational specialization
• Problem of double counting
• Existence of illegal earning
• Existence of non-marett trnsactions 16
• Coverage of commodities and services
THANK YOU

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