Group 1: National Income

Group 1

NATIONAL INCOME

MEANING  Measures

of national income and output are used in economics to estimate the total value of production in an economy.  In India, the Central Statistical Organization has been estimating the national income.

Definition of National Income  National

income is a measure of the total value of the goods and services (output) produced by an economy over a period of time (normally a year).  “ National income estimate measures the volume of commodities and services turned out during a given period counted without duplication.”

Basic Concepts  Gross

Domestic Product (GDP) is the total value of output (goods and services) produced by the factors of production located within the country’s boundary in a year.

Basic Concepts  Gross

National Product (GNP) is the total value of output (goods and services) produced and income received in a year by domestic residents of a country. It includes profits earned from capital invested abroad.

Basic Concepts  Per

capita income (or) output per person is an indicator to show the living standards of people in a country. If real PCI increases, it is considered to be an improvement in the overall living standard of people.

Need for the Study of National Income  To

measure the size of the economy and level of country’s economic performance.  To trace the trend or speed of the economic growth in relation to previous year(s) as well as to other countries.  To make projection about the future development trend of the economy.  To make international comparison of people’s living standards.

Methods of Calculating National Income Output or Product Method  In

the output or product method, the measures of GDP are calculated by adding the total value of the output (of goods and services) produced by all activities during any time period, such as a year.

Methods of Calculating National Income Income Method  In

the income method, the measures of GDP are calculated by adding all the income earned by various factors of production which are engaged in the production of output.

Methods of Calculating National Income Expenditure Method 

In the expenditure method, the measures of GDP are calculated by adding all the expenditures made in the economy. The essential components of expenditure are:

C = consumption expenditures I = domestic investment G = government expenditures X = exports of goods and services M = imports of goods and services NR = net income receipts from assets abroad The sum of all these aggregate expenditure provides us the measure of national income.  GDP = E = C + I + G + (X-M) where E is aggregate expenditure.      

SOURCE  www.textbooksonline.tn.nic.in

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