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NATIONAL INCOME

CONCEPTS & MEASUREMENT


Group Members
Fahad Farid (5352)
Rehan Ali Zaman (5622)
Muhammad Muneeb (5616)
Faraz Hamid (5220)
Zohaib Zaidi (8806)
Saad Ashraf (4927)

INTRODUCTION
It means the total value of goods and services
produced annually in a country.

It includes payments made to all resources in the
form of wages, interest, rent and profits.
CONCEPTS OF NATIONAL INCOME
Gross National Product: It is the total measure of the flow of goods and services
at market value resulting from current production during a year in a country,
including net income from abroad.

GNP at Market Prices: When the total output produced in one year is multiplied
by their market prices prevalent during that year in a country, plus net income
from abroad, it is called GNP at Market Prices.

GNP at Factor Cost: It is the sum of the money value of the income accruing to the
various factors of production in one year in a country.

GNP at Factor Cost = GNP at market prices Indirect Taxes + Subsidies.

CONCEPTS OF NATIONAL INCOME
Net National Product (NNP): NNP is GNP net of depreciation.
NNP = GNP Depreciation

NNP at Market Prices: Net value of final goods and services evaluated at
market prices:
NNP at Market Prices = GNP at Market Price Depreciation

NNP at Factor Cost: Net output evaluated at factor prices.
NNP at Factor Cost = NNP at Market Prices Indirect Taxes + Subsidies
(or)
= GNP at Market Prices Depreciation Indirect taxes + Subsidies
CONCEPTS OF NATIONAL INCOME
Domestic Income or Product: Income generated or earned by the
factors of production within the country from its own resources is called
domestic income or domestic product.

Domestic Income = National Income Net Income earned from abroad.

Personal Income: Personal Income is the total income received by the
individuals of a country from all sources before direct taxes.

Personal Income = National Income Undistributed Corporate Profits Profit Taxes
Social Security Contributions + Transfer Payments + Interest on Public Debt.

CONCEPTS OF NATIONAL INCOME
Disposable Income: income that accrues after direct taxes have actually
been paid.
Disposable Income = National Income Business Savings Indirect taxes plus
Subsidies Direct Taxes on Persons Direct Taxes on Business Social Security
Payments + Transfer Payments + Net Income from abroad.

Real Income: Real income is national income expressed in terms of a
general level of prices of a particular year taken as base.
Real NNP = Current Year NNP x Base year Index / Current Year Index.

Per Capital Income: The average income of the people of a country in a
particular year is called per capital income for that year.
Per capita income = national income / population. Real per capita income = real
national income / population.
CONCEPTS OF NATIONAL INCOME
Nominal GDP
Value of output measured at actual prices (current dollar output)
Does not correct for inflation

Nominal GDP = Current year Quantities x Current year Prices

Real GDP
Value of output based on prices of some base period (constant dollar
output)
Eliminates effect of inflation

Real GDP = Current year Quantities x Base year Prices

GDP Deflator
The GDP deflator shows how much a change in the base year's GDP relies
upon changes in the price level.

GDP Deflator = Nominal GDP x 100
Real GDP
METHODS OF MEASURING NATIONAL
INCOME
Product Method: Total value of final goods and services produced in a
country during a year is calculated at market prices.

Income Method: The net income payments received by all citizens of a
country in a particular year are added up i.e. net incomes that accrue to
all factors of production.

Expenditure Method: The total expenditure incurred by the society in a
particular year is added together- includes personal consumption
expenditure, net domestic investment, government expenditure on goods
and services and net foreign investment.

Value Added Method: Difference between the value of material outputs
and inputs at each stage of production is the value added.
DIFFICULTIES IN NATIONAL INCOME
MEASUREMENT
Difficulty of defining nation in the terminology national income.

There are a number of goods and services which are difficult to be
assessed in terms of money.

The failure to distinguish properly between a final and an intermediate
product.

Income earned through illegal activities are not included in national
income.

Transfer payments- these earnings are a part of individual income and
also government expenditure.
DIFFICULTIES IN NATIONAL INCOME
MEASUREMENT
Capital gains or loss to property owners excluded from GNP because
they do not result from current economic activities.

All inventory changes at original cost not replacement costs included in
GNP measure.

Depreciation valuation adjustment is full of statistical difficulties.

With price increase, monetary NI increases though production may have
gone down & with price fall monetary NI falls though production may
have gone up.

Monetary NI an underestimation of real NI.

Public services cannot be estimated correctly.


DIFFICULTIES IN DEVELOPING COUNTRIES FOR
NATIONAL INCOME MEASUREMENT
Large non-monetized sector.

Lack of occupational specialization.

Several productive activities do not enter market transactions.

Many people do not keep accounts.

Adequate and correct production and cost data are not available.
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