NATIONAL INCOME BY BHUSHAN

1. National Income
-BY-BHUSHAN BIRADAR

2. Definition
• The National Income is the total amount of income
accruing to a country from economic activities in a years
time. It includes payments made to all resources either in
the form of wages, interest, rent, and profits.
• The progress of a country can be determined by
the growth of the national income of the country

3. • There are two National Income Definition
• Traditional Definition
• Modern Definition
•

4. • Traditional Definition
• According to Marshall: “The labor and capital of a country acting on
its natural resources produce annually a certain net aggregate of
commodities, material and immaterial including services of all kinds.
This is the true net annual income or revenue of the country or national
dividend.
• Simon Kuznets defines national income as “the net output of
commodities and services flowing during the year from the country’s
productive system in the hands of the ultimate consumers.”

5. • Following are the Modern National Income definition
• GDP
• GNP
• Gross Domestic Product
• The total value of goods produced and services rendered
within a country during a year is its Gross Domestic Product.

6. • Further, GDP is calculated at market price and is defined as GDP at market
prices. Different constituents of GDP are:
• Wages and salaries
• Rent
• Interest
• Undistributed profits
• Mixed-income
• Direct taxes
• Dividend
• Depreciation

7. Concepts of National Income
• There are various concepts of National Income, such as
GDP, GNP, NNP, NI, PI, DI, and PCI which explain the facts
of economic activities.

8. GDP at market price
• GDP at market price: Is money value of all goods and services
produced within the domestic domain with the available
resources during a year.
• GDP = (P*Q)
• Where,
• GDP = gross domestic product
• P = Price of goods and services
• Q= Quantity of goods and services

9. Gross National Product (GNP)
Market Prices .
• Gross National Product (GNP): Is market value of final goods and services
produced in a year by the residents of the country within the domestic territory
as well as abroad. GNP is the value of goods and services that the country's
citizens produce regardless of their location.
• GNP=GDP+NFIA
• GNP=C+I+G+(X-M) +NFIA
• Where,
C=Consumption
I=Investment
G=Government expenditure
(X-M) =Export minus import
• NFIA= Net factor income from abroad.

10. GNP at Factor Cost
• GNP at Factor Cost GNP at factor cost is the sum of the money value of the income
produced by and accruing to the various factors of production in one year in a country.
• NP at Factor Cost = GNP at Market Prices – IndirectTaxes + Subsidies.

11. Net National Product (NNP) at
MP
• Net National Product (NNP) at MP: Is market value of net output
of final goods and services produced by an economy during a year
and net factor income from abroad.
NNP=GNP-Depreciation
or, NNP=C+I+G+(X-M) +NFIA- IT-Depreciation
• Where,
C=Consumption
I=Investment
G=Government expenditure
(X-M) =Export minus import
• NFIA= Net factor income from abroad.

12. National Income (NI)
• National Income (NI): Is also known as National Income at factor cost which means total
income earned by resources for their contribution of land, labour, capital and
organisational ability. Hence, the sum of the income received by factors of production
in the form of rent, wages, interest and profit is called National Income.
• Symbolically, NI=NNP +Subsidies-Interest Taxes
or, GNP-Depreciation +Subsidies-IndirectTaxes
or, NI=C+G+I+(X-M) +NFIA-Depreciation-IndirectTaxes +Subsidies

13. Personal Income (PI)
• Personal Income (PI): Is the total money income received by individuals and households of a
country from all possible sources before direct taxes. Therefore, personal income can be
expressed as follows:
•
PI=NI-Corporate Income Taxes-Undistributed Corporate Profits- Social Security
Contribution +Transfer Payments.

14. Disposable Income (DI)
• Disposable Income (DI) : It is the income left with the
individuals after the payment of direct taxes from
personal income. It is the actual income left for disposal
or that can be spent for consumption by individuals.
• Thus, it can be expressed as:
• DI=PI-DirectTaxes

15. Per Capita Income (PCI)
• Per Capita Income (PCI): Is calculated by dividing the
national income of the country by the total population of
a country.
• Thus, PCI=Total National Income/Total National
Population

16. Measurement of National Income
There are three methods to calculate National Income:
1)Income Method
2)Product/Value Added Method
3)Expenditure Method

17. INCOME METHOD
• Income Method
• Under this method, we add all the incomes from
employment and ownership of assets before taxation
received from all the production activities in an economy.
• Thus, it is also the Factor Income method. We also need to
add the undistributed profits of the private sector and the
trading surplus of the public sector corporations.
• However, we need to exclude items not arising from
productive activities such as sickness benefits, interest on
the national debt, etc.

18. INCOME METHOD
• INCOME METHOD
• In this National Income is measured as flow of income.
• We can calculate NI as:
• NET NATIONAL INCOME = Compensation of Employees+ Operating surplus mixed (w +R +P +I) + Net income +
Net factor income from abroad.
• Where,
• W =Wages and salaries
• R = Rental Income
• P = Profit
• I = Mixed Income

19. Product/Value Added Method
• Under this method, we add the values of output produced or
services rendered by the different sectors of
the economy during the year in order to calculate the National
Income.
• In this method, we include only the value added by each firm in
the production process in the output figure
• Hence, we use the value-added method.The value-added
output of all the sectors of the economy is the GNP
at factor cost.
• However, this method is unscientific as it adds the value of
only those goods and services that are sold in the market or
are available for sale in the market

20. Product/Value Added Method
• Product/Value Added Method
• In this National Income is measured as flow of goods and services.
• We can calculate NI as:
• NATIONAL INCOME = G.N.P – COST OF CAPITAL – DEPRECIATION – INDIRECTTAXES

21. Expenditure Method
• This method measures the total domestic expenditure of
the economy. It consists of two elements, viz. Consumption
expenditure and Investment expenditure.
• Consumption expenditure includes consumption expenditure
of the household sector on goods and services and
consumption outlays of the business sector and public
authorities.
• Investment expenditure refers to the expenditure on the
making of fixed capital such as Plant and Machinery,
buildings, etc.

22. Expenditure Method
• Expenditure Method
• In this National Income is measured as flow of expenditure.
• We can calculate NI through Expenditure method as:
• National Income=National Product=National Expenditure.

23. Measurement of National Income

24. Measurement of National Income

25. Difficulties in Measurement of
National Income
1. Problems of Definition:
2. Lack of Adequate Data
3. Non-availability of Reliable Information
4. Choice of Method:
5. Lack of Differentiation in Economic Functioning
6. Double Counting:
7. Unpaid services
8. Illegal Income.
9. Illiteracy

26. What Is the Circular Flow Model?
• The circular flow model demonstrates how money moves
through society. Money flows from producers to workers as
wages and flows back to producers as payment for products.
In short, an economy is an endless circular flow of money.
• That is the basic form of the model, but actual money flows
are more complicated. Economists have added in more
factors to better depict complex modern economies.
• These factors are the components of a nation's gross national
product (GDP) or national income. For that reason, the
model is also referred to as the circular flow of income
model.

27. Circular flow of Income..

28. THANK YOU…