Sangeeta sarpal, PGT (Economics)
JNV,Patiala
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 value.For Example:
Plant and machinery
FINAL GOODS:�
are those goods which are finally consumed by the consumers or by the producers.Final 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 asset.For 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 year.It 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
Household sector
Production sector
Factor Services
Goods and services
MONEY FLOW
Household Sector
Production sector
Payment of factor services
Expenditure on goods and services
METHODS TO CALCULATE NATIONAL INCOME
1.Income Method
2.Product Method or Value Added Method
3.Expenditure method
PAYMENTS
Two types of Payments/Income are there
1.Factor Payments/Income
2.Non –factor payments or transfer payments/incomes
FACTOR PAYMENTS
Payments in the form of Rent Interest,Wages and profit.
TRANSFER PAYMENTS
INCOME METHOD
Q1.CALCULATE DOMESTIC INCOME
Items RS.Cr.
1.Wages 50
2.Interest 70
3.Rent 10
4.Profit 55
Domestic Income=Wages+Interest+Rent+Profit
=50+70+10+55
=135cr.
Q2.FIND NET DOMESTIC INCOME AND GROSS DOMESTIC INCOME FROM THE FOLL.DATA
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
Q.4.FIND NDP AT FACTOR COST,GDP AT FACTOR COST FROM THE FOLLOWING DATA�
Items RS.Crore
1.Compensation of Employees 600
2.Operating Surplus 800
3.Mixed Income 40
4.Consumption 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�
1.Compensation of Employees
a.Wages and salary in cash or in kind
b.Social Security contribution by Employers
c.Retirement Pention
2.Operating Surplus
a.Rent
b.Interest
c.Profit
!.Distributed Profit or dividend
!!.Undistributed Profit or retained earning
!!!.Corporate tax
d.royalty
3.Mixed Income:
is the income of the self-employed
ITEMS Rs Cr.
1.Compensation of Employees 800
2.Operating surplus 200
3.Mixed income 100
4.Consumption 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
1.Value of output=sales +change in stock
sales=Price*Quantity
change in stock=closing stock-opening stock
2.Value added=value of output-intermediate consumption
3.Gross Value Added at Market Price=value added=value of output-intermediate cost
4.Gross Domestic Product at Market price=value of output-intermediate cost
5.Net 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�
1.Sales 300
2Depreciation 20
3.Net indirect tax 30
4.Puchase of raw material 150
5.Change in stock -10
6.Purchase 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
1.Sales 500
2.Opening stock 30
3. Closing stock 20
4.Puchase of intermediate consump. 300
5.Purchase of machinery 150
6.Subsidy 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
1.GDP 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
2.NNP 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
1.Net domestic capital formation 100
2.Private final consumption exp. 200
3.Govt Final cons.exp. 300
4.Net Export 80
5.Depreciation 20
6.Net 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