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Measuring the
Production, Income,
and Spending of
Nations
National Income Accounts:
National Income Accounting represents the
tools and methods by which economists and
policy-makers measure economic activity and
economic growth over time.
It measures the total value of the goods and
services(output) produced by an economy
over a period of time (normally a year).It is
also a measure of the income flown from
production, and/or the sum total of all
spending involved for the production of
output.
Standard Measures of Income and Output:
• Gross National Product (GNP)
• Gross Domestic Product (GDP)
• Gross National Income (GNI)
• Net National Product (NNP)
• Net Domestic Product (NDP)
• Net National Income (NNI)
• Per Capita Income (PI)
• Personal Disposable Income (PDI)
limitations :
GNP is not considering the poverty, literacy, public
health, gender equality etc.
Needs for the study of National Income :
1.To measure the size of the economy and level of
country’s economic performance
2.To trace the trend or speed of the economic growth
in relation to previous year(s) as well as to other
countries
3.To know the structure and composition of the
national income in terms of various sectors and the
periodical variations in them
4.To make projection about the future development
trend of the economy
Needs…
Public Business
Households Circular Flow Firms /
/ Consumers of Income Producers
Supply of Commodities
(Commodity Price)
Y = C + I + G + (X–IM)
Methods of calculating National
Income
There are three approaches to the
measurement of national income:
Spending or Expenditure Method
Income Method
Production or Output Method
GDP = E = C + I + G + (X–IM)
where E is aggregate expenditure
The Income Approach
The measure of GDP are calculated by adding all the income earned
by various factors of production which are engaged in the production
of output.
C = YD – S = Y + TR – TA – S ……………..(5)
Consumption is disposable income less saving
Or consumption is equal to income plus transfers less taxes and
saving
Using RHS of (5) in (2) :
Y = ( Y + TR – TA – S ) + I + G + NX
S – I = (TR – TA + G ) + NX ……………(6)
Govt. budget deficit,
i.e., Excess of private saving over investment = total govt.
expenditure consisting of govt. purchases of goods and
services(G) + Govt. transfer payments (TR) + net exports –
amount of taxes (TA) received by govt.
Problems in calculating National Income
Black Money : It has created a parallel economy -
unreported economy which is equivalent to the size of
officially estimated size of the economy
Non-Monetization : In most of the rural economy,
considerable portion of transactions occurs informally
Growing Service Sector : growing faster than
Agricultural and Industrial sectors… value addition in
legal consultancy, health service ,financial and business
services is not based on accurate reporting.
Problems…
9.2% 9%
8.3% 8.4%
7.4%
6.2%
4.3%
Sectoral Composition on National Income
2010f
International comparison of National income (2009)
Ref. Websites
Wikipedia
http://en.wikipedia.org/wiki/Gross_domestic_product
India In Business
http://www.indiainbusiness.nic.in
Thank You