Date post: | 09-Apr-2018 |
Category: |
Documents |
Upload: | edmond-dantes |
View: | 225 times |
Download: | 0 times |
of 20
8/8/2019 Definitions and Measures of National Income- Abilash, Alen and Aneesh
1/20
8/8/2019 Definitions and Measures of National Income- Abilash, Alen and Aneesh
2/20
National IncomeNational Income is the money
value of all final goods and
services produced in a country
during a period of one year.
Definition ofNational Income
8/8/2019 Definitions and Measures of National Income- Abilash, Alen and Aneesh
3/20
Economic activities
These include all human activities which creategoods and services that can be valued at
market price
E.g. : production by farmers, services provided
by banks
Non-economic activities
Activities which produce goods and services thatdo not have any market value
E.g. : Spiritual, social, political activities
8/8/2019 Definitions and Measures of National Income- Abilash, Alen and Aneesh
4/20
National Income as Money Flow
economic activities generate
flow of goods and services
money flows in the form of factorpayments- wages, interest, rent, profits etc.
8/8/2019 Definitions and Measures of National Income- Abilash, Alen and Aneesh
5/20
Thus
National income may also be estimated by
adding thefactor earnings and adjusting the
sum for indirect taxes and subsidies
The National Income thus obtained is known
asNATIONAL INCOMEAT FACTOR COST
8/8/2019 Definitions and Measures of National Income- Abilash, Alen and Aneesh
6/20
How is National Income
different from PrivateIncome?
8/8/2019 Definitions and Measures of National Income- Abilash, Alen and Aneesh
7/20
Personal Income - PI:
Income earned by all the individualsand institutions during a year in a
country
The entire national income does not
reach individuals and institutions
A part of it goes by way of
corporate taxes
Undistributed profits
Social security contributions
8/8/2019 Definitions and Measures of National Income- Abilash, Alen and Aneesh
8/20
People sometimes get incomes withoutany productive activity
They are called Transfer Payments
Example: Unemployment benefits, old age
pensions etc.
Such transfer payments are not included
in the National Income
However they are added to Personal
Income
8/8/2019 Definitions and Measures of National Income- Abilash, Alen and Aneesh
9/20
Personal Income PI:
PI is computed by using the following
formula
PI = National Income (Corporate taxes,
undistributed profits, social security
contributions) + Transfer Payments
8/8/2019 Definitions and Measures of National Income- Abilash, Alen and Aneesh
10/20
GROSS NATIONAL PRODUCTGROSS NATIONAL PRODUCT
Defined as current value of all goods and
services produced by the economy
during a given period
GNP = value of all ( final) goods and
services produced in a country in one
year + income earned by its citizensabroad - income earned byforeigners in
the country
8/8/2019 Definitions and Measures of National Income- Abilash, Alen and Aneesh
11/20
GNP is the market value of all goods and
services produced by the residents of a
particular country.
It includes the income of those residents
earned by corporations owned overseas and
from working abroad.
It is also one of the measure ofNational
Income
GNP = GDP + Net Factor Income from Abroad
Difference between National and
Domestic is Net factor income from
abroad
8/8/2019 Definitions and Measures of National Income- Abilash, Alen and Aneesh
12/20
Gross Domestic Product (GDP)Gross Domestic Product (GDP)
GDP measures the value of output producedwithin the domestic boundaries of the country
GDP includes the output of the foreign owned
firms with production plants located in thecountry
There are three ways of calculating GDP - all of
which should sum to the same amount since by
identity:
National Output = National Expenditure =
National Income
8/8/2019 Definitions and Measures of National Income- Abilash, Alen and Aneesh
13/20
GNP andGDP tend to be used as synonyms,GNP andGDP tend to be used as synonyms, butbut
GNP
Incomes earned by
nationals abroad are
taken into account-but
not that of foreigners
who earn locally.
GDP
Incomes earned within
the countrys boundariesis taken into account- byboth the nationals andthe foreigners.
8/8/2019 Definitions and Measures of National Income- Abilash, Alen and Aneesh
14/20
Net National Product (NNP)Net National Product (NNP) NNP is defined as GNP minus Depreciation.
i.e. NNP = GNP - Depreciation NNP is the most complete measure of productive activity
by a country's nationals, though it is measured at market
price
i.e. it includes, Indirect taxes and sometimes even
subsidies
This need to be adjusted to get actual values of
National Incomex Adjusted NNP will be at factor cost
Difference between Gross and Net is
Depreciation
8/8/2019 Definitions and Measures of National Income- Abilash, Alen and Aneesh
15/20
Net National Product (NNP) atfactor CostNet National Product (NNP) atfactor Cost
For this, first find Net Indirect taxes
Net Indirect Taxes = Indirect taxes subsidies
NNP at factor cost = NNP at market price Net
Indirect taxes
The Net National Product (NNP) atfactor cost is also
commonly known as National Income
Thus National Income i.e. Net National Product at
factor cost can be calculated from GDP using following
formula
NI = GDPMarket Price + Netfactor Income Depreciation Net
Indirect tax
Difference between Market Price and Factor
Cost is Net Indirect Taxes
8/8/2019 Definitions and Measures of National Income- Abilash, Alen and Aneesh
16/20
8/8/2019 Definitions and Measures of National Income- Abilash, Alen and Aneesh
17/20
GNP GNI
GDP GNP less NET INCOME FROM ABROAD
NNP GNP less DEPRECIATIONNDP NNP less NET INCOME FROM ABOARD
8/8/2019 Definitions and Measures of National Income- Abilash, Alen and Aneesh
18/20
8/8/2019 Definitions and Measures of National Income- Abilash, Alen and Aneesh
19/20
8/8/2019 Definitions and Measures of National Income- Abilash, Alen and Aneesh
20/20