NATIONAL INCOME AND RELATED AGGREGATES
NATIONAL INCOME AND RELATED AGGREGATES
Macro Economics: - Macroeconomics is the study of aggregate economic variables of an
economy.
Consumption goods:- Are those which are bought by consumers as final or ultimate goods to
satisfy their wants.
Eg: Durable goods car, television, radio etc.
Non-durable goods and services like fruit, oil, milk, vegetable etc.
Semi durable goods such as crockery etc.
Capital goods – capital goods are those final goods, which are used and help in the process
of production of other goods and services. E.g.: plant, machinery etc.
Final goods: Are those goods, which are used either for final consumption or for investment.
It includes final consumer goods and final production goods. They are not meant for resale.
So, no value is added to these goods. Their value is included in the national income.
Intermediate goods intermediate goods are those goods, which are used either for resale or
for further production. Example for intermediate good is- milk used by a tea shop for selling
tea.
Stock: - Quantity of an economic variable which is measured at a particular point of time.
Stock has no time dimension. Stock is static concept.
Eg: wealth, water in a tank.
Flow: Flow is that quantity of an economic variable, which is measured during the period of
time.
Flow has time dimension- like per hr, per day etc.
Flow is a dynamic concept.
Eg: Investment, water in a stream.
Investment: Investment is the net addition made to the existing stock of capital.
Circular flow in a two sector economy.
Related aggregates
Gross Domestic product at market price
It is the money value of all final goods and services produced during an accounting year with
in the domestic territory of a country.
Gross National product at market price:
It is a money value of all final goods and services produced by a country during an
accounting year including net factor income from abroad.
Net factor income from abroad:
Difference between the factor incomes earned by our residents from abroad and factor
income earned by non-residents with in our country.
Components of Net factor income from abroad
Formulas
Concept of domestic (economic) territory
Domestic territory is a geographical territory administered by a government within which
persons, goods and capital circulate freely. (Areas of operation generating domestic income,
freedom of circulation of persons, goods and capital)
Scope identified as
*Political frontiers including territorial waters and air space.
*Embassies, consulates, military bases etc. located abroad but including those locates within
the political frontiers.
*Ships, aircrafts etc., operated by the residents between two or more countries.
*Fishing vessels, oil and natural gas rigs etc. operated by the residents in the international
waters or other areas over which the country enjoys the exclusive rights or jurisdiction.
Resident (normal resident):-
Normal resident is a person or an institution who ordinarily resides in that country and
whose center of economic interest lies in that country.
(The Centre of economic interest implies :-
( 1) the resident lives or is located within the economic territory.
(2) The resident carries out the basic economic activities of earnings,spending and accumulation from that location
(3). His center of interest lies in that country.
Relation between national product and Domestic product.
Domestic product concept is based on the production units located within domestic
(economic) territory, operated both by residents and non-residents.
National product concept based on resident and includes their contribution to production both
within and outside the economic territory.
National product = Domestic product + Residents contribution to production outside the
economic territory (Factor income from abroad) - Non- resident contribution to production
inside the economic territory (Factor income to abroad)
Methods of calculation of national income
I - PRODUCT METHOD (Value added method):
(+) Net factor income from abroad
( -) Net indirect tax.
Income method:
1. Compensation of employees.
2. Operating surplus.
3. Mixed income of self-employed.
Expenditure method:
1. Government final consumption expenditure.
2. Private final consumption expenditure.
3. Net Export.
4. Gross domestic capital formation.
Gross Domestic fixed+ change in stock
Capital formation
GDPmp = (1) + (2) + (3) + (4)
NNP fc = GDPmp - consumption of fixed capital + NFIA- Net indirect taxes
Note: If capital formation is given as Net domestic capital formation we arrive at NDPmp.
Capital formation = Investment
CALCULATION OF NATIONAL DISPOSABLE INCOME, PRIVATE INCOME,
PERSONAL INCOME AND PERSONAL DISPOSABLE INCOME
National Disposable income
It is the income from all
the sources (Earned
Income as well as
transfer payment from
abroad) available to
resident of a country for
consumption
expenditure or saving
during a year.
NNPFC + Net Indirect
tax + Net current
transfer from abroad
=Net National
disposable income.
(Gross National
Disposable Income
includes depreciation)
Private Income includes factor
income as well as Transfer
income (Earned income +
Unearned income)
Factor income from net domestic
product accruing to private sector
includes income from enterprises
owned and controlled by the private
individual.
Excludes:-
1. Property and entrepreneurial
income of the Gov. departmental
enterprise
2. Savings of the Non-departmental
Enterprise.
Factor Income from NDP Accruing
to private
sector = NDPFC (-) income from
properly entrepreneurship accruing
to the govt departmental Enterprises
(-) savings of Non departmental
enterprises.
Private Income Includes
* Factor income from net domestic
product accruing to private sector.
+ Net factor income from abroad
+ Interest on National Debt
+ Current transfer from Govt.
+ Current transfer from rest of the world
Personal Income
PI is the income Actually
received by the individuals
and households from all
sources in the form of
factor income and current
transfers.
Personal income = Private
Income (-) corporation tax.
(-) Corporate Savings OR
Undistributed profits
Personal disposable
income
Personal income (-) Direct
Personal tax (-)
Miscellaneous
Receipts of the govt.
Administrative department
(fees and fines paid by household)
Macro Economics: - Macroeconomics is the study of aggregate economic variables of an
economy.
Consumption goods:- Are those which are bought by consumers as final or ultimate goods to
satisfy their wants.
Eg: Durable goods car, television, radio etc.
Non-durable goods and services like fruit, oil, milk, vegetable etc.
Semi durable goods such as crockery etc.
Capital goods – capital goods are those final goods, which are used and help in the process
of production of other goods and services. E.g.: plant, machinery etc.
Final goods: Are those goods, which are used either for final consumption or for investment.
It includes final consumer goods and final production goods. They are not meant for resale.
So, no value is added to these goods. Their value is included in the national income.
Intermediate goods intermediate goods are those goods, which are used either for resale or
for further production. Example for intermediate good is- milk used by a tea shop for selling
tea.
Stock: - Quantity of an economic variable which is measured at a particular point of time.
Stock has no time dimension. Stock is static concept.
Eg: wealth, water in a tank.
Flow: Flow is that quantity of an economic variable, which is measured during the period of
time.
Flow has time dimension- like per hr, per day etc.
Flow is a dynamic concept.
Eg: Investment, water in a stream.
Investment: Investment is the net addition made to the existing stock of capital.
- Net Investment = Gross investment – depreciation.
- Depreciation: - depreciation refers to fall in the value of fixed assets due to normal wear andtear, passage of time and expected obsolescence.
Circular flow in a two sector economy.
Related aggregates
Gross Domestic product at market price
It is the money value of all final goods and services produced during an accounting year with
in the domestic territory of a country.
Gross National product at market price:
It is a money value of all final goods and services produced by a country during an
accounting year including net factor income from abroad.
Net factor income from abroad:
Difference between the factor incomes earned by our residents from abroad and factor
income earned by non-residents with in our country.
Components of Net factor income from abroad
- Net compensation of employees
- Net income from property and entrepreneurship (other than retained earnings of resident companies of abroad)
- Net retained earnings of resident companies abroad.
Formulas
- NNP Mp = GNP mp - depreciation
- NDP Mp = GDPmp - depreciation
- NDP Fc = NDP mp – Net indirect taxes (indirect tax – subsidies)
- GDP Fc = NDP fc + depreciation
- NNP Fc = GDP mp - depreciation + Net factor income from abroad – Net indirect taxes
- (NNP FC is the sum total of factor income earned by normal residents of a country during the accounting year)
- NNP fc = NDP fc + Net factor income from abroad.
Concept of domestic (economic) territory
Domestic territory is a geographical territory administered by a government within which
persons, goods and capital circulate freely. (Areas of operation generating domestic income,
freedom of circulation of persons, goods and capital)
Scope identified as
*Political frontiers including territorial waters and air space.
*Embassies, consulates, military bases etc. located abroad but including those locates within
the political frontiers.
*Ships, aircrafts etc., operated by the residents between two or more countries.
*Fishing vessels, oil and natural gas rigs etc. operated by the residents in the international
waters or other areas over which the country enjoys the exclusive rights or jurisdiction.
Resident (normal resident):-
Normal resident is a person or an institution who ordinarily resides in that country and
whose center of economic interest lies in that country.
(The Centre of economic interest implies :-
( 1) the resident lives or is located within the economic territory.
(2) The resident carries out the basic economic activities of earnings,spending and accumulation from that location
(3). His center of interest lies in that country.
Relation between national product and Domestic product.
Domestic product concept is based on the production units located within domestic
(economic) territory, operated both by residents and non-residents.
National product concept based on resident and includes their contribution to production both
within and outside the economic territory.
National product = Domestic product + Residents contribution to production outside the
economic territory (Factor income from abroad) - Non- resident contribution to production
inside the economic territory (Factor income to abroad)
Methods of calculation of national income
I - PRODUCT METHOD (Value added method):
- Sales + change in stock = value of output
- Change in stock = closing stock – opening stock
- Value of output - Intermediate consumption = Gross value added (GDPMp)
- NNP Fc (N.I) = GDPMp (-) consumption of fixed capital (depreciation)
(+) Net factor income from abroad
( -) Net indirect tax.
Income method:
1. Compensation of employees.
2. Operating surplus.
3. Mixed income of self-employed.
- NDP fc = (1) + (2) + (3)
- NNP fc = NDP fc (+) Net factor income from abroad
- GNP mp = NDP fc + consumption of fixed capital + Net indirect tax Indirect tax – subsidy)
Expenditure method:
1. Government final consumption expenditure.
2. Private final consumption expenditure.
3. Net Export.
4. Gross domestic capital formation.
Gross Domestic fixed+ change in stock
Capital formation
GDPmp = (1) + (2) + (3) + (4)
NNP fc = GDPmp - consumption of fixed capital + NFIA- Net indirect taxes
Note: If capital formation is given as Net domestic capital formation we arrive at NDPmp.
Capital formation = Investment
CALCULATION OF NATIONAL DISPOSABLE INCOME, PRIVATE INCOME,
PERSONAL INCOME AND PERSONAL DISPOSABLE INCOME
National Disposable income
It is the income from all
the sources (Earned
Income as well as
transfer payment from
abroad) available to
resident of a country for
consumption
expenditure or saving
during a year.
NNPFC + Net Indirect
tax + Net current
transfer from abroad
=Net National
disposable income.
(Gross National
Disposable Income
includes depreciation)
Private Income includes factor
income as well as Transfer
income (Earned income +
Unearned income)
Factor income from net domestic
product accruing to private sector
includes income from enterprises
owned and controlled by the private
individual.
Excludes:-
1. Property and entrepreneurial
income of the Gov. departmental
enterprise
2. Savings of the Non-departmental
Enterprise.
Factor Income from NDP Accruing
to private
sector = NDPFC (-) income from
properly entrepreneurship accruing
to the govt departmental Enterprises
(-) savings of Non departmental
enterprises.
Private Income Includes
* Factor income from net domestic
product accruing to private sector.
+ Net factor income from abroad
+ Interest on National Debt
+ Current transfer from Govt.
+ Current transfer from rest of the world
Personal Income
PI is the income Actually
received by the individuals
and households from all
sources in the form of
factor income and current
transfers.
Personal income = Private
Income (-) corporation tax.
(-) Corporate Savings OR
Undistributed profits
Personal disposable
income
Personal income (-) Direct
Personal tax (-)
Miscellaneous
Receipts of the govt.
Administrative department
(fees and fines paid by household)
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