This document discusses concepts and methods related to measuring national income. It defines key terms like gross domestic product, net domestic product, gross national product, and personal income. It explains methods for measuring national income like the product, income and expenditure methods. The importance of measuring national income is that it shows a country's economic performance and living standards. However, there are also challenges in obtaining accurate measurements due to limitations of data and accounting for non-monetary activities.
2. Contents
Introduction
Concept of National Income
Methods of measuring National Income
Importance of measuring National Income
Challenges in measuring National Income
3. National Income
“National income measures the total value of goods & services produced within the
economy during the course of a year”
“The labour & capital of a country acting upon it’s natural resources produces
annually a certain amount of net aggregate of commodities , material and
immaterial including services of all kinds”
- Prof. Marshall
5. Concepts of National Income
Gross Domestic Product
Net Domestic Product
Gross National Product
Net National Product
National Income at Factor cost
Personal Income
Disposable Personal Income
6. Gross Domestic Product (GDP)
“ GDP is the aggregate money value of the all final value of the goods and
services produced in the domestic territory of a country during an financial
year
GDP = Consumption Expenditure+ Investment Expenditure +
Government Expenditure
7. Net Domestic Product (NDP)
“NDP refers to the market value of all final goods and services turned
out in an economy during a given period of time after making
allowance for depreciation charges”
NDP = GDP – Depreciation charges
8. Gross National Product (GNP)
“ GNP is defined as the total market value of all final goods and services
produced in a country in an year’s time ”
GNP = GDP + X – M
X=Income earned by nationals abroad &
M=Income earned by foreigners in the given country
9. Net National Product (NNP)
“NNP is the market value of the net output of final goods and services
produced by the country during the relevant income period”
NNP = GNP – Depreciation charges
NNP = NDP + X - M
NNP gives idea net increase in total production of the country
10. National Income at Factor cost
NI at factor cost refers to all incomes earned by resource owners (factors
of production) for their contribution to the production of different goods &
services in a year
NI = NNP – Indirect Taxes + Subsidies
This concept throws light on the distribution side of national output
11. Personal Income (PI)
PI is the sum of all incomes all received by the individuals and households
in a during one year
PI = NI – Corporate Income Taxes – Undistributed Profits – Social
Security contributions + Transfer Payments
This concept help us to know the potential purchasing power of the people
and households and the welfare of consumers in society
12. Disposable Personal Income (DPI)
DPI is that part of personal income which is left after the payment of
personal direct taxes
DPI = PI – Personal Direct Taxes
DPI = Consumption + Saving
This concept indicates the purchasing power in the hands of the people
and their actual living standards
13. Methods of Measuring National Income
I. Product method
II. Income method
III. Expenditure method
14. Importance Of National Income
Know the Production performance & achievements
Indicates the living standards of the people
Know whether a country is growing, stagnant or declining
Shows the contribution made by various sectors to NI
Know the purchasing power of money
15. Importance Of measuring National
Income
Contains figures of consumption, savings ,investments , imports & exports
Know relative roles played by public & private sector
Helps central government to decide amount of grants-in-aids to different
state governments
Valuable guide to formulate economic policies
Reveals cyclic behaviour of an economy and also helps in forecasting
16. Challenges in Measuring National Income
Theoretical Or Conceptual Difficulties
Definition of the term “nation” in National Income
Choice of method for measuring the National Income
Only goods & services having monetary value included
Stage at which National Income is estimated
17. Challenges in Measuring National Income
Practical Or Statistical Difficulties
Non availability of data
Absence of trained personnel
Absence of proper records
Existence of non-monetized sector
Absence of occupational specialization
18. Challenges in Measuring National Income
Practical Or Statistical Difficulties
Problem of double counting
Existence of illegal earnings
Existence of non-market transactions
Coverage of commodities & services