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, fishing Secondary – electricity, trade, manufacturing Tertiary – 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