National Income Accounting

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 Measurement Of National Product: An Overview
• Flow of Product Approach
• Components of GNP
GNP = Private Consumption (C)
+ Gross Private Domestic
Investment (Ig) +Government
Expenditure on Goods and
Services (G) + Net Exports (E)
• Earnings or Cost Approach
• Earnings or Costs As Sources Of
GNP
GNP = Wage + Interest + Rent and
Other Property Income (double
counting of intermediate goods
purchased from other firms
excluded by the value added
technique).
+ Indirect Taxes that show up as an
expense of generating the flow of
products
+ Depreciation
+ Profit
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 Measures of National Product

• GDP = Value of goods and services produced within the

country’s geographic territory irrespective of the ownership of
the resources employed to produce the goods and services in
course of a given time frame

• GNP = GDP + Net factor income earned abroad

• GNP = C + Ig + G + X
• NNP = C + In + G + X

• Similarly,
NDP = NNP – Net Factor Income earned abroad.

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 Nominal Vs Real Income
• Nominal Income = Income measured at
current price
• Real Income = Nominal Income/Income Deflator
where Income Deflator is the Price Index

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 Purchasing Power Parity- PPP Income
Official Rupee/Dollar Exchange Rate
• PPP Income = GNP Income
PPP of Indian Rupee

PPP (Purchasing Power Parity) of Indian Rupee = Number of Indian Rupees

required to purchase a representative goods and services in India that one US
Dollar will buy in USA

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GNP/GDP, NATIONAL INCOME (NY) AND DISPOSABLE INCOME
(DY)
GNP/GDP at market price = C + Ig + G + X,
where
C = Private Consumption
Ig = Gross Private Investment
G = Govt. Expenditure on Goods and Services
X = Net Exports
GNP/GDP at factor cost
= GNP/GDP at market price-Indirect Taxes

NY = NNP/NDP at factor cost

= GNP/GDP at market price – Indirect Taxes – Depreciatio

DY = NY – Direct Taxes – Net Business Savings

+Transfer Payments by Govt.

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 GNP/GDP, NATIONAL INCOME (NY)

AND DISPOSABLE INCOME (DY) – GRAPHICAL REPRESENTATION

Net exports (X) Depreciation

Government
Expenditure on Indirect Taxes
Goods & Services
GNP/ (G)
GDP Gross Private Direct Taxes
Investment (I) Net Business Transfer
at NNP/NDP at Savings Payments
mark factor cost
et or
price Private The National DY
Consumption Income
(C) (NY)