DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH

Name : R. Mohan
Designation : Head of ccp
Branch : Commercial &
Computer Practice
Institution : GMR. Polytechnic
Gajwel
Year/Semester : III year/ VI th semester
Subject : Business Economics II
Subject Code : CCP-602.
Topic : National Income
Sub-topic : Measurement of NI - Precautions
Duration : 50 minutes.
Teaching Aids : PPts Animation

CCP602.40 to 41 1
Objectives
On completion of this period you will be able to
know :
Measurement of NI -Precautions
 Product Method
 Income Method
 Expenditure
 Statistics required for calculation

CCP602.40 to 41 2
Precautions:
 The following precautions are to be taken when
Product Method is employed

i. To avoid double counting only final product must

be added. The value of intermediate and raw

materials should not be considered

ii. Farm products kept for self consumption by the

farmers should be estimated and measured at

prevailing market price
CCP602.40 to 41 3
 Contd.,

 While estimating the value of out put the changes in the

price levels between the years should be taken into
account
 National Income is always stated with reference to the
price of a particular year

CCP602.40 to 41 4
 Contd.,

 Indirect taxes included in the prices should be deducted

for getting exact market value of the products

 Subsidies given by the government to certain products

should be added to get the correct value

 Add the net value of exports and net receipts from

abroad

CCP602.40 to 41 5
Income Method - Precautions
 All transfer payments which do not represent earnings
from productive services are not to be included
Eg. Unemployment allowances, pension charity,
personal gifts, scholarships received etc.,
 All unpaid services should be excluded
Eg. Services of house wives
 Financial transactions relating to wealth, the capital
gains and losses which do not represent real income
should be excluded
Eg. Purchase of shared sale of old assets etc.,
CCP602.40 to 41 6
 Contd.,

 Direct tax revenue to the government should be

deducted from the total income since it is a transfer
payment

 Government subsidies should be deducted from the

profits of subsidised companies

 Add undistributed profits of companies, income from

government property and profits of public enterprises

CCP602.40 to 41 7
Expenditure Method - Precautions
 It is important that proper accounts should be maintained
for getting accurate figures

 In India due to a number of factors like illiteracy

ignorance proper records are not maintained by private
persons

 Hence this method is not applied in calculation of

national income

CCP602.40 to 41 8
Statistics Required:

The three methods given above need different

types of statistics.

CCP602.40 to 41 9
Product Method:

 Requires a census of manufactures and agricultural

output.

CCP602.40 to 41 10
Income Method:

 Requires personal taxes and the financial

statements of different enterprises

CCP602.40 to 41 11
Expenditure Method:

 Requires extensive family budget data

CCP602.40 to 41 12
Which Method to choose:
 the best way to arrive at NI will be to employ all

these three methods so as to permit their cross –

checking ensuring greater accuracy

CCP602.40 to 41 13
Summary:
The three alternative methods of estimating
national income are
 Products method
 Income Method
 Expenditure Method

CCP602.40 to 41 14
Quiz:
2. The aggregate factor income which arise from the
current production of goods and services is called
___________
3. The total market value of all final goods & services
produced in a year is ________
4. The sum of all incomes actually recieved by all
individual is _________
Answers : 1. National Income
2. GNP
3. Personal Income .
CCP602.40 to 41 15
Frequently Asked Questions:

3. Define National Income

4. Write short note on :

a) GNP b) NNP C) PCI D) PI

6. What are the different methods of estimation

National Income

CCP602.40 to 41 16
Assignment:

3. What is National Income and explain the

components of NI

4. Briefly explain the different methods of estimating

the NI

CCP602.40 to 41 17