NATIONAL INCOME

MADE BY:ASHUTOSH

MESURING NATIONAL INCOME

METHODS

VALUE ADDED INCOME EXPENDITURE

MEANING OF NATIONAL INCOME

FROM INCOME POINT OF VIEW

“National income is the sum of factor incomes earned by normal residents of a country within and outside the country in the form of rent, wages, interest and profit in an accounting year.”

(factor incomes for factors of production)

CONCEPT

DEPRICIATION : Dep. is used to differentiate between GROSS and NET.

(GROSS = NET + DEPRICIATION) NET INDIRECT TAX : NIT is used to

differentiate between MARKET PRICE and FACTOR PRICE.

(MKT. PRICE = FAC. PRICE + NIT)

Cont……

NET FACTOR INCOME FROM ABROAD : NIFA is used to differentiate between NATIONAL INCOME and DOMESTIC INCOME.

(NATIONAL = DOMESTIC + NIFA)

EXAMPLES

1. GDP to GNP:

GNP = GDP + NIFA

2. GDP at MP to GNP at FC :

GNP at FC = GDP +NIFA – NIT

3. GDP to NDP :

GDP = NDP + DEPRICIATION

Domestic income and its Components

COMPONENTS

Compensation of employees

Operating surplus

Mixed income ofSelf employed

COMPENSATION OF EMPLOYEES

WAGES :This is a reward or compensation paid to employees for rendering services. It includes :

1.Wages and salaries in cash or kind.

2.Empolyer’s contribution to SSC schemes.

OPERATING SURPLUS

OPERATING SURPLUS

Income fromproperty

Income from Entrepreneurship

Parts of Income from Property

There are two parts :-

1. Rent

2. Interest

Parts of Income from Entrepreneurship

PROFIT

Corporate

tax

Dividend Undistributed profit

Mixed Income of Self-Employed

Income of own account workers (like farmers , doctors ,barbers) and unincorporated enterprise (like small shopkeepers , retail traders etc.).

They do not make proper accounts. They do not hire factor services from market

rather they have their own. In India they are known as unorganized

sectors so, their income is clubbed under mixed income head.

Steps Involved

1. Identify enterprises which employ factors of production.

2. Classify various types of factor income under three main heads.

3. Estimate amount of factor payments made by each enterprise.

4. Sum up all factor payments made within domestic territory to get NDP at FC .

5. Estimate NIFA to derive NATIONAL INCOM

Precautions

All transfer incomes are not included. Sale and purchase of second hand goods

are excluded because they are not part of production of this year’s.

Imputed rent of owner is included (assumed). Incomes from illegal activities like betting,

smuggling ,black marketing are excluded.