PRESENTATION ON

NATIONAL INCOME

Introduction

• National income is the final outcome of all economic activities of a nation valued in terms of money

• According to J. M. Keynes

National income is the money value of all final goods and services produced in a country during a year

continued……………….

• Economic activities- all human activities which create goods and services that can be valued at market price

• Help us to know the economic progress achieved and to make comparative study

• In India, national income is calculated and published by the central statistical organization (cso)

Measures of national income

• Gross national product (GNP) GNP= Value of all final goods & services +income from abroad

• Gross domestic product (GDP) market value of final goods & services produced in the domestic

economy during a period of 1 year + income earned locally by foreigners – income earned abroad by nationals

• Net national product (NNP)NNP =GNP – depreciation (used up capital in the process of

production)Gives the measure of net output available for consumption by the

society

Methods of computation

• Product method OR Net output value added method Entire national economy is considered as an aggregate of

producing units Production units classified in to 3 sectors:

Primary - agriculture, forest, fishingSecondary – electricity, trade, manufacturingTertiary – communications, banking/insurance, health ,

education and other services GNI= Money value of total goods& services+ income from

abroad Helps us to find out contributions of various sectors to

national income

Methods……………

• Income method Incomes accruing to the basic factors of production used in

producing the national product GNI = Rent +wage + interest + profit +income from abroad Labor & capital – factor of production 3 types of income-

Labor income – wages , free health and education, pension ,employee’s welfare fund.

Capital income – dividends, interest on bonds, royalties etc. Mixed income – 1) farming enterprises 2) sole proprietorship 3) professional

Help us to know the contributions made by different landlords, laborers, capitalists & organizers to national income

Methods………..

• Expenditure method or final product method GNI= Individual expenditure +govt. expenditure 2 methods:

All money expenditures at market price are computed and added up together.

Private consumption expenses+ direct tax payment+ private savings +payment to non-profit making institutions and charitable institutions

Value of all the products finally disposed off are computed and added up

Private consumer goods +public goods and services +private investment goods +net investment abroad

Which method should choose?

• Net product method , because-This method requires classification of

economic activities & output thereof which is much easier.

Easy availability of data on economic activities

Other related incomes

• Per capita income ( PCI)Average annual income of the people of the

country

National income / population

• Personal income (PI)PI = WAGES +RENT +INTEREST +PROFIT

+OTHERS

Importance of national income

• To estimate economic development

• To know how far development objectives were achieved

• To know the contributions of various sectors to national income

Difficulties while calculation

• Self consumed production

• Incorrect statistics

• No systematic accounts

• Unreliable data

• Illiteracy and ignorance

• Lack of proper criteria for measuring the value of services

Reason for slow growth of India

• Slow growth of agricultural sector

• Defect in planning

• Rapid growth of population

• Poverty

• Under-utilization of productive capacity of machines

Theories of national income

• According to keynesian theory of income determination, the entire economy divide in to 4 sectors:Household sector

Firms or the business sector

Government sector

Foreign sector

Three models of keynesian theory

• Two-sector model – household &business sector (closed economy& no savings)

• Three-sector model –household, business and government sectors

• Four-sector model –foreign sector with the three sector model

That’s all for the day