National income farmulas and basic concepts of india
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Published on: Mar 3, 2016
Transcripts - National income farmulas and basic concepts of india
National income YATA.VEERA BRAHMAM
Basically our India is earning income by exporting products and services to other countries through
different economic activities by using different factors of production for the cost of yearly expenses.
Factors of production: The factors that are used in production are called factors of production.
Factors of production: land, labor, capital, organization
Yearly expenses: For the contribution made by factors of production, they are paid the yearly expenses of
production obtains are called factor incomes.
Factor incomes (yearly expenses): rent for land, wages for labor, interest for capital, profit for
So, obviously our India’s total production (output) should be equal to the cost of factor incomes (because
factor incomes are the total costs for production)
SECTORS A nation’s economy can be divided into 14 sectors to define the proportion of
the population engaged in different economic activities.
What are Economic Activities? Meaning
"Human activities which are performed in exchange for money or money's worth are called
Based on this economic actives the 14 sectors are divided in 3 main categories.
1. Primary sectors (most of the income is coming from profession)
2. Secondery sectors(most of the income is coming from employment)
3. Teritory sectors(most of the income is coming from business)
Each sector may or may not contain all economic activities
Example: agriculture is pure profision,
restorent is combination of bouth profission,employment and
bussines activities but most of the income coming from bussiness activity.
Calculation of national income (=net national product at market price): for
calculating national income (=net national product at market price) first we will found gross
Definition of 'Gross Domestic Product - GDP'
The monetary value of all the finished goods and services produced within a
country's borders in a specific time period, though GDP is usually calculated on an
GDP can be determined in three ways, all of which should in principle gives the
same result. They are
1. The product (or output) approach,
2. The income approach,
3. The expenditure approach
1 Production approach:
Market value of all final goods and services calculated during 1 year. “The
production approach is also called Net Product or Value added method. This
method consists of 4 stages:
Estimate and combine the Gross Value of domestic Output out of the each economic activity in
particular sector to get gross value added (GVA)
Gross value of domestic product of each sector is calculated by any of the following two
1. By multiplying the output of each activity by their respective market price and
adding them together.
Gross value of domestic product=∑price ×output
2. By collecting data on gross sales and inventories from the records of companies
and adding them together
Gross value of domestic product = Value of the total sales of goods and services +
Value of changes in the inventories (c.s-os).
Determine the intermediate consumption, i.e.,” the cost of material supplies and services used to
produce final goods or services” of the each economic activity in particular sector to get total
intermediate consumption in particular sector.
Net Value Added (or) net output
= Gross Value Added (GAV) (or) grass output– Total Value of Intermediate Consumption in particular
The sum of Net Value Added in various sectors is known as GDP (Gross Domestic Product)
at factor cost.
We add gross value (Gross value of domestic product) of all sectors to get Gross
Value Added (GVA) at factor cost.
Subtracting each sector's intermediate consumption from gross output, we get GDP at
2 Income approach:
Another way of measuring GDP is to measure total income. If GDP is calculated this
way it is sometimes called Gross Domestic Income (GDI), or GDP(I). GDI should
provide the same amount as the expenditure method described below.
This method measures GDP by adding incomes that firms pay households for factors
of production they hire- wages for labour, interest for capital, rent for land and profits
GDP at fc=W+I+R+P
3 Expenditure approach:
All expenditure incurred by individuals during 1 year. It includes all of private and
public consumption, government outlays, investments and exports less imports that
occur within a defined territory.
GDP at mc = C + G + I + NX
"C" is equal to all private consumption, or consumer spending, in a nation's economy
"G" is the sum of government spending
"I" is the sum of all the country's businesses spending on capital
"NX" is the nation's total net exports, calculated as total exports minus total imports.
(NX = Exports - Imports)
By using this chart easily we can convert one stage of production to other stage
Net factor income from abroad (NFIA) = NR (Net income inflow from assets abroad or Net Income
Receipts) - NP (Net payment outflow to foreign assets).
Net Indirect Tax (NIT) = Indirect tax-subsidies.
Gross Domestic Product at MP
Product at FCNational
For example if we want to convert grass national product at market price (GNP at MP) to
net domestic product at market price (NDP at MP)
For converting gross to net we should less depreciation (because we are converting from
down to up so we should use same less “-“symbol)
For converting national to domestic we should less NFIA (because we are converting from
up to down so we shouldn’t use same plus “+“symbol)
Finally: NDP at MP= GNP at MP- depreciation-NFIA
. Transfer of payments: payments or receipts without contribution in production are called transfer of
Some of the examples are pension, subsidies, indirect taxes, windfall gains, grants, allowances paid to old
aged, handicapped; under privileged people etc. it is not part of national income
GOVT INCOME PRVT INCOME
PERSONAL INCOME UNDISTRIBUTED PROFFITSNET TRNS OF GOVT PAY...CORPORATE TAXFACTOR INCOME
DISPOSABLE INCOME DIRECT TAXES
SOSIAL SECRTY CONTRBTIN