ECONOMICS

PRESENTATION
NATIONAL INCOME

GROUP MEMBERS
Shweta Gawas (19)
Jeeten Gupta (24)
Abhishek Jain (31)
Akshita Lukhi (43)
Tejas Makwana (44)
Nakul Mehra (48)
Trupti Parab (54)

INTRODUCTION
While per capita gross domestic product is the
indicator most commonly used to compare income
levels, there are two other measures are generally
preferred by analysts: per capita Gross National
Income (GNI) and Net National Income (NNI). Whereas
GDP refers to the income generated by production
activities on the economic territory of the country, GNI
measures the income earned by the residents of a
country, whether generated on the domestic territory
or abroad, NNI is GNI net of depreciation.

DEFINATIONS

National Income is the total money value of all goods and

services produced in a during year. It is the total income of the
economy during the year.

The total net value of all goods and services produced within a
nation over a specified period of time, representing the sum of
wages, profits, rents, interest, and pension payments to
residents of the nation.

GNI is defined as GDP plus net receipts from abroad of wages

and salaries and of property income plus net taxes and
subsidies receivable from abroad. NNI is equal to GNI net of
depreciation.

The Importance of National Income :

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The measurement of the size of the economy and level of

country's economic performance.
To trace the trend or the speed of the economic growth in
relation to previous years also in other countries.
To know the composition and structure of the national income
in terms of various sectors and the periodical variations in
them.
To make projections about the future development trend of
the economy.
To help government formulate suitable development plans
and policies to increase growth rates.
To fix various development targets for different sectors of the
economy on the basis of the earlier performance
To help businesses to forecast future demand for their
products.
To make international comparison of peoples living standards

Concepts Of National Income

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Gross National Product (GNP)

Gross of Domestic Product (GDP)
Net National Product (NNP)
National Income at Factor Cost (NIFC)
Personal Income (PI)
Disposable Personal Income (DPI)

Gross National Product (GNP)

GNP refers to the aggregate market value of all final goods & services
produced in a country during a year. It is a monetary measures.

G.N.P. is defined as the money value of the national production for any
given period. Ina open economy GNP include the following :

The money value of the final goods and services produced in the economy
to avoid double counting. Intermediate products are excluded from it.

The money value of only currently produced goods and services as G.N.P. is
a measure of the economy's productivity during the year.

GNP = C + I + G + (X-M) + (R-P)

Gross of Domestic Product (GDP)

GDP refers to the money value of goods and services produced within
the Geographical boundaries of a country. This implies that whatever
is produced in India by , Indian nationals & foreigners working in India
will constitute GDP. At the same time , income earned by Indians
outside the country are not included.
Whatever earned by Indian citizens inside or outside the country from
GNP. but that part of income earned by Indians. abroad has to be
excluded to get GDP. Net factor income from abroad is an addition or a
subtraction to GNP to arrive at GDP.

Net National Product (NNP)

It refers to the net production of goods and services in a country
during the year. It is G.N.P. less depreciation during the year.
NNP = GNP - Depreciation for the given year
It is also called national income at market prices. It is a useful concept
in study of growth economics as it takes into consideration the net
increase in the total production of the country.

National Income at Factor Cost (NIFC)

It is the total of all incomes earned by the owner of factors of production for
their contribution of factors of production.

Therefore, for calculating it, such payments which are not made for any
productive service is not included. Example- an individual may get gifts,
transfer payments from business, etc. which form a part of his income
but, since he has not rendered any service to get from them, they do not
enter the calculation of national income at factor cost.
NIFC = NNP - Indirect taxes + subsidies
It does not include capital consumption allowance government business
and individual transfer payments and indirect taxes. All these do not
reach the factors of production.

Personal Income (P.I.)

This is the actual income received by the individuals and households in
the country from all sources. It denotes aggregate money payments
received by the people by way of wage, interest, profits, and rents. It is
the spendable income at current prices available to individuals. Taxes and
payment towards social security measured will not be available for
individuals, so these have to be deducted from what is earned.
PI = NI Corporate taxes undistributed corporate profits social
security contributions + transfer payments
Transfer payments may be by government or business transfers, interest
paid by government, dividends, etc.

Disposable Personal Income (DPI)

The whole of personal income is not available for consumption as
personal direct taxes have to be paid. What is left after payment of
personal direct taxes is call disposable personal income.
DPI = PI - personal taxes, property taxes and insurance payments
This is the amount available for individuals and households for
consumption. It is not that the entire D.P.I. is spent on consumption.

The various methods of calculating national income :

There are three methods by which national income

can be calculated:

1. Product Method
2. Income Method
3. Expenditure Method

Product Method
This is also called the output method, the inventory method or the census method. It
consists of finding out the market value of all the goods and services produced during a
year.

According to this method the economy is classified into different sectors, namely.

Direct sector: in this sector the value of services of such professions like doctors,
dramatics, soldiers, politicians, etc., are taken by equating to their services.
Agriculture industry
International transaction sector: in this sector, we take into account the value of goods
exported and imported payment from abroad, payments to other countries.

In each sector we make an inventory of goods produced and find out the end product
making an addition to the value of goods. The value added method can be followed in
order to avoid double counting. The value added of a firm is its output less whatever it
purchases from other firms such as raw materials, and other inputs.

This method has a merit because it helps us to have a comparative idea of the
importance of various activities in economy like agriculture, manufacturing, trade, etc.
However in advanced countries this method may be successful as it is very easy to get
data from government records. But in under developed countries this method may give
rise to various problems like imputation of money values to non- monetized sector.

Income Method
This method refers to the gross national income obtained by adding
together wages and salaries, interests, profits and rents of persons and
institution and including government incomes are earned either from
property or through work. To arrive at the totality of income of nation,
the following procedure will be adopted:

a) Net rents include the rental value of owner occupied houses.

b) Wages, salaries and all such earnings of person employed, pensions
are excluded.
c) Earnings by way of interest.
d) Income of joint stock companies.
e) Income from overseas investment.
This method gives national income at factor cost.

Expenditure Method

This method is also called the flow of product approach (by American
economist Samuelson) or the outlay method.
Here we take into account the expenditure on finished products :

Expenditure by consumers on goods and services.

Expenditure by producers on investment of goods.
Expenditure by government on consumption as well as capital goods.

To this we add money received from abroad through trade and other
payments. This figure thus arrived at will give us GNP

The merit of this method is that it believes in the identity between

national expenditure, income and total product
Whichever method we use the result should be more or less the same. In
other words, they can be used to cross-check reliability of each other.

The difficulties in calculation of national

income :
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Non Monetary Measures

Problem of Double Counting
Petty Production
Public Service
Transfer Payment
Conceptual Duties
Difficulties in Value Estimation
Inefficient Data Collection