Complete written notes of the National Income(macro-economics)for I.com,B.com.

Complete written notes of the National Income

(macro-economics)for I.com,B.com.

 National Income,

 Various concepts of National Income, 

Measurement of national income, 

The problem of measuring national income.

complete notes of the National Income.

for I.com,B.com.

by powerandcommand.

 Define National Income.

National income is the total income of a country. It is the aggregate of all income of residents of a country.

According to Alfred Marshall,

'The labor and capital of a country, acting on its natural resources, produce annually a certain net aggregate of all kinds of goods and services. This is the national income of that country.

we can define it as;

*The total market value of all final goods and services produced wages, in a country for one year.

OR

*Sum of all income received by households, including wages, rents, interest, payment, and profit during one year.

Various concepts of National Income.

1. Gross Domestic Product.

it is the first to measure national income gross domestic product means the total value of production then within a country.

The concept of GDP ignored incomes received by its nationals from their property in other countries, or the amount received for services rendered abroad.

It only records what is the sum total of income when goods and services are produced inside in country.

Not including foreign income.

GDP=C+I+G+(X-M)

2. Gross National Product.

GNP is the most important and commonly used concept in National accounting. it measures the total value of the output of goods and services produced by the people in or outside their countries.

GNP is wider and more comprehensive than GDP.

'GNP of a country is the sum of total market values of all final goods and services produced annually by its nationals.'

All kinds of goods and services are included in the GDP.

Agricultural production.

All kinds of crops, dairy farms, production, forests, rivers, seas, etc.

Industrial product.

Industrial products such as all kinds of machinery and spare parts, all kinds of textiles like transportation, electric equipment, furniture, sports equipment, etc.

Mineral products.

Mineral products such as coal, iron, petroleum, natural gas, etc.

Services.

Services for all types of people working in government and semi-government and private offices Similarly, the services of people working in physical and educational, research and legal institutions, etc.

The following points must be kept in mind while measuring the Gross National Product.

Avoid double counting.
Only this current year goods and services should be collected.
Earnings from overseas investment should also be counted.

                              GNP=GDP+Income received from abroad.

OR

                                     Nett factor income received from abroad.

3.Net National Product.

Net national product is the measure of the national production of a country obtained by deducting the amount of depreciation from GNP.

Capital expenditure -Allowance for depreciation repair and replacement.

suppose, the cost of all wear and tear is.Rs20,000.

Then,

GNP=RS.150,000

Allownce for depreciation =Rs.20,000

Net Nstional Production= Rs.130,000

NNP = GNP - Depreciation.

4. National income.

National income is the total of all income and by the factor of production in the form of wages, rent, interest, and profit.

NNP gives us a major of national income by adding the money value of all goods and services by a country in a given period at market prices, but the total value of the national product is not distributed among the people as a factor of income so, we find national income at factor cost.

NI=Indirecct tax+subsideis.

-Indirect tax,

Indirect taxes are those texts that can shift from one individual to another.

e.g.Sales tax,Value add tax,custom duty,etc.

Subsidies.

-Subsidies

Subsidies give benefits to individual Businessman institutes typically give to remove a burden give to promote social goods or an economic policy.

5. Personal income.

Total income received by the people from all sources is known as national income differs from national income for two reasons.

firstly,  there are some deductions from the earnings of personnel in the form of social security contributions before they receive their salaries.

secondly, there are some payments received by the people that they have not earned as income in exchange for the production of goods.

e.g.pension,gifts,zakat.unemplyment allownces,scolarship etc.

Personal income. (PI)=  NI- Social security contributions.
                                                       -Corporation taxes.  
                                                      -Undistributed profit. (reserve fund).
                                                      +Tranfer payment.  

6. Disposable Income.

After deduction of direct tax remaining income of a person is known as disposable personal income.

DPI=PI-Direct tax. 

Disposable income is that income that is left with the individuals after paying

taxes to the government. The individuals can spend this amount as they

please. However, they can spend in categorically two ways, i.e., either they can

spend on consumption goods, or they can save. Therefore, the disposable

personal income is equal to:

Disposable Income = Personal Income – Personal Taxes.

                               OR

Disposable Income = Consumption + Saving.

Problems in Measurement of National Income.

1. The danger of double counting.

 While measuring GDP, we have to distinguish between the three forms of goods

The problem of Price Instability.

Since national income is measured in

money terms, fluctuation in the general price level will render unstable the

measuring rod of money for national income. When prices are rising, the

national income figures are rising even though production might have gone

down. On the other hand, when prices are falling, GNP is declining even

though the production might have gone up. To solve this problem,

economists and statisticians have introduced the concept of real income.

2. A reliable source of data.

All the data for national accounts are collected from different sources, including surveys, income tax returns, retail sales statistics, and employment data. Inaccurate or incomplete data can severely damage the integrity of the national accounts. Economists have to be very careful in the collection and selection of national income accounting data.

3. The Growth of the “Black Economy”

The “Black Economy” refers to that part of economic activity, which is undeclared and therefore unrecorded for tax purposes and is therefore deemed to be ‘illegal’. Many illegal activities in the economy generally escape both the law and measurement in the national income. Such illegal activities include smuggling, drug trafficking, and all parallel market transactions. Since such activities are outlawed, income earned, through them is not captured in the national income, thus, underestimating the national income account.

Measurement of National Income.

1. Total Production Method.

This method is based on the concept of national income total market value of all final goods and services produced in a country during one year.

According to this method, the economy is divided into different sectors such as agriculture manufacturing transport and communication construction and services, etc. The income from abroad is also calculated. This gives us Gross National Product when the amount of depreciation is subtracted, we get the National Product or national income.

Measurement of National Income According to, the Total Production Method.

Goods and Services.	Market value.
Agriculture product.	25000
Industrial	35000
mineral	10000
goods	40000
services	50000
Gross domestic	160000
Allowances	(36000)
Subsides	+32000
Net National Products.	Rs.156,000

Precautions.

1. Double counting must be avoided.

2. General level of prices must be adjusted.

3. Unfair earning is not included.

2. Total Income Method.

This method is derived from the concept of national income as,' The total sum of the total income of all the person of a country during one year.'

This measurement highlights the distribution aspects of national income people receive income in various forms and various sources they provide their personal services and receive wages and profit they also provide the services of their properties such as land, building, and capital and received interest and rent. All such income is added to arrive at the national income.

Measurement of National Income According to, the Total Income Method.

Period of Income.	Value of period.
Lagan.	20,000
Wages.	30,000
Interest.	15,000
Profit.	45,000
Corporate.	500
Income of shares.	4000
Undistributed profit.	9000
Social security.	325000
National Net Income.	156,0000

 

3. Total Expenditure Method.

National income can also be computed by adding the total expenditure done by the people and government during one year.

There are main four categories of Expenditure.

1. Private consumption expenditure.

This includes all consumer expenditure on goods and services.

2. Gross domestic private expenditure.

Expenditure on fixed assets(land, building, machinery, equipment, vehicles, etc)  and change in value of stock goods.

3. Gross domestic private investment.

This includes expenditure on Defence police education other services

4. Export minus import.

The value of export is included and the value of imports is excluded because imports do not represent our domestic production.

Private consumption expenditure.		Rs.40000
Gross domestic private expenditure.		32000
Government Expenditure.		30000
Gross domestic private investment.		25000
Net foreign investment.		+23000
Net national product.		=190,000
(NNP)Deprecation Allowances		(-15000)
Net National Product.		Rs.175000
Subsidies		+5000
Indirect tax.		-(30,000)
Transfer of payment		+50,000
Balance of Payments difference(X-M)		-3000
Statistics dispensary		-1000
Private consumption expenditure.	Rs.40000

Precautions.

1. Only final expenditure is taken into account.

2. International transactions must be adjusted.

3. Expenditures on intermediate goods should not be included.

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