NATIONAL INCOME AND
ITS AGGREGATES
MACRO ECONOMICS
Macro Economics is the economics in
which we study Economics as a whole.
For Example,Population of a country,
National income of a
country
Foreign Exchange Reserve
of a country
Balance of payment of a
country
BASIC CONCEPTS
Consumption Goods
are those goods
which are directly used for the
satisfaction of human wants. For
Example: Bread, T.V., Clothes,
Bedsheets are the examples of
consumption goods
CAPITAL GOODS
are those goods which are
used in the process of production for several
years and is of high [Link] Example:
Plant and machinery
FINAL GOODS:
are those goods which are
finally consumed by the consumers or
by the [Link] consumer goods
are finally purchased by the consumers
for the satisfaction of their wants and
the final producer goods are finally
purchased by the producers and
generally used by the producers as fixed
[Link] Example:Tractor,Thresher used
by the farmer.
INTERMEDIATE GOODS
are those goods
which are used as a raw material to
make a product.
For Example:wood used by the
carpenter.
Besan used by shopkeeper
to make Ladoo.
STOCK AND FLOW
Stock is measured at a point of time eg
Money in your pocket at 11.00AM,water
in tank
Flow is measured in a given period of time
eg.
Income,production,expenditure,water in
the tap
GROSS INVESTMENT AND
DEPRECIATION
Gross Investment refers to the total
production of capital goods during one
accounting [Link] includes
capital goods used for the
replacement of existing capital
stock,which is also called Depreciation.
capital goods used as a net addition to
the existing capital stock.
CIRCULAR FLOW OF
INCOME
It is the flow of income and flow of goods
and services from one sector to another
sector.
There are two sectors in the economy,
One is Household sector and another is
Production sector
REAL FLOW
Goods and
services
Household
sector Production sector
Factor
Services
MONEY FLOW
Expenditure on
goods and
services
Household Production sector
Sector
Payment of
factor services
METHODS TO CALCULATE
NATIONAL INCOME
[Link] Method
[Link] Method or Value Added Method
[Link] method
Two types of Payments/Income are
there
[Link] Payments/Income
[Link] –factor payments or transfer
payments/incomes
FACTOR PAYMENTS
Payments in the form of Rent
Interest,Wages and profit.
Rent is received from land
Interest is received from
Capital
Wages is received by labour
Profit is received by
enterpreneur
These payments are made for the
services rendered or given
TRANSFER PAYMENTS
Payments not in form of services paid
as pocket money to child, scholarship to
students,unemployment allowance,old
age pension,gifts,grant,
INCOME METHOD
Factor
Income=Rent+Interest+wages+Profit
Domestic
Income=Rent+Interest+wages+Profit
Net Factor Income=Net Domestic
Income= Rent+Interest+Wages+Profit
Net Domestic Product at Factor
Cost=NDPfc=
Rent+Interest+wages+Profit
[Link] DOMESTIC
INCOME
Items [Link].
[Link] 50
[Link] 70
[Link] 10
[Link] 55
Domestic
Income=Wages+Interest+Rent+Profit
=50+70+10+55
=135cr.
[Link] NET DOMESTIC INCOME AND
GROSS DOMESTIC INCOME FROM THE
[Link]
Items [Link]
[Link] 200
[Link] 300
[Link] 100
[Link]( Consumption of Fixed capital)
50
Net Domestic income=wages+Profit+interest
=200+300+100
=600Cr.
Gross Domestic Income
=Wages+Profit+interest+Depreciation
=200+300+100+50=600+50=650cr.
NATIONAL INCOME=DOMESTIC
INCOME+NET FACTOR INCOME FROM
ABROAD
DOMESTIC INCOME
NDP at FC=Compensation of Employees
+Operating surplus
+Mixed Income
GDP at FC=NDP at FC+Depreciation
[Link] NDP AT FACTOR COST,GDP AT
FACTOR COST FROM THE FOLLOWING DATA
Items [Link]
[Link] of Employees 600
[Link] Surplus 800
[Link] Income 40
[Link] of fixed capital 20
NDP at FC=Compensation of employees
+Operating surplus+mixed income= 1440
GDP at FC=NDP at FC+Depreciation
=1440+20=1460
COMPONENTS OF DOMESTIC INCOME
[Link] of Employees
[Link] and salary in cash or in kind
[Link] Security contribution by
Employers
[Link] Pention
[Link] Surplus
[Link]
[Link]
[Link]
!.Distributed Profit or dividend
!!.Undistributed Profit or
retained earning
!!!.Corporate tax
[Link]
[Link] Income:
is the income of the self-employed
[Link] NDP at Factor cost ,GDP at factor
cost from the foll.
ITEMS Rs Cr.
[Link] of Employees 800
[Link] surplus 200
[Link] income 100
[Link] of fixed capital 50
NDP at FC=Compensation of
Employees+OperatingSurplus+Mixed income
=800+200+100=1100cr.
GDP at FC=NDP at FC+consumption of fixed
capital
= 1150 cr
VALUE ADDED METHOD
[Link] of output=sales +change in stock
sales=Price*Quantity
change in stock=closing stock-opening stock
[Link] added=value of output-intermediate
consumption
[Link] Value Added at Market Price=value
added=value of output-intermediate cost
[Link] Domestic Product at Market
price=value of output-intermediate cost
[Link] National Product at Factor Cost=GDP at
MP-Depreciation+Net factor income from
Abroad-Net Indirect tax
FIND THE NET VALUE ADDED AT
MARKET PRICE
[Link] 300
2Depreciation 20
[Link] indirect tax 30
[Link] of raw material 150
[Link] in stock -10
[Link] of machinery 100
Solution;
Value of output=sales+change in stock
value added=value of output-purchase of raw
material
GVA at Mp=value added
NVA at Mp=GVAat Mp-Depreciation
FIND THE GROSS VALUE
ADDED AT MARKET PRICE
Items Rs crores
[Link] 500
[Link] stock 30
3. Closing stock 20
[Link] of intermediate consump. 300
[Link] of machinery 150
[Link] 40
Solution;
value of output=sales+change in stock
=500+(20-30)=490
GVA at MP=Value of output-intermediate cost.
=490-300=190cr
EXPENDITURE METHOD
[Link] at MP=Private final consumption
expenditure+Govt final consumption
Expenditure+Gross Domestic capital
formation+Net Export
Gross Domestic Capital Formation=Net
domestic fixed capital formation
+depreciation+ change in stock
Net Export=Export-import
[Link] at FC=GDP at MP-
Depreciation+Net factor income from
Ab.-Net indirect Tax
CALCULATE GDP AT MP,GDP AT FC
FOLLOWING DATA:
Items RsCR
[Link] domestic capital formation 100
[Link] final consumption exp. 200
[Link] Final [Link]. 300
[Link] Export 80
[Link] 20
[Link] Indirect Tax 10
Solution:
GDP at MP=Private Final Consumption Expenditure+Govt
Final Consumption Expenditure+Gross Domestic
Capital Formation+Net Export
=200+300+(100+20)+80=700
GDP at Fc=GDP at MP-Net indirect tax
=700-10=690cr.
WHAT IS THE DEFINATION OF GDP
GROSS DOMESTIC PRODUCT at market price
is the market value of all final
goods and services produced in one
accounting year with in the domestic
territory of a country.
GROSS NATIONAL PRODUCT at MARKET
PRICE
is the market value of all
final goods and services produced in one
accounting year within the domestic
territory of a country including Net Factor
Income from abroad.
GROSS DOMESTIC PRODUCT AT BASE YEAR
PRICES/REAL GDP
it is the market value of all final goods
and services produced in one
accounting year with in the domestic
territory of a country at base year
prices.
GDP at Base year=Price*Quantity
If price of base year=8
quantity=200
GDP at base year=8*200=1600
GROSS DOMESTIC PRODUCT AT
MARKET PRICES/NOMINAL GDP
It is the market value of all final goods
and services produced in one
accounting year within the domestic
territory of a country at current year
prices.
GDP at Current prices=Price*Quantity
Price of current year=18
Quantity =200
GDP at Current Prices=18*200=3600
WHICH ONE IS THE BETTER FOR
THE WELFARE OF THE ECONOMY?
GDP at MP/current year
=p*Q=18*200=3600
GDP at Base year price =P*Q=8*200=1600
Welfare of the economy is there when there
is increase QUANTITY of goods and
services not the prices
GDP AT BASE year=P*Q=10*200=2000
GDP at current prices=P*Q=10*300=3000
GDP at base year prices/REAL GDP are the
best indicator of welfare of the economy
Because when the
GDP at BASE YEAR prices increase it
means that the prices remain same and
there is increase in quantity of output.
GDP DEFLATOR
GDP Deflator= Nominal GDP/REAL
GDP*100
For Example:
Find GDP Deflator when
Nominal GDP=30,Real GDP=20
Solution :
GDP Deflator=30/20*100=150
PRICE INDEX
Price Index= NOMINAL INCOME/Real
INCOME*100
For Example:
When Real income is 20,
Price index is 10
find the Nominal income?
Solution:
10=Nominal Income/20*100
10*20/100=Nominal income
so Nominal Income=2 Ans
GREEN GDP/GREEN GNP
=While calculating we take into
account of our environmental
pollution,cost in terms of excessive
exploitation of natural resourses then it
is called Green GNP
Thank You
