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National Income and Related Aggregates: Important Formulae

This document defines key concepts related to national income and GDP. It provides definitions and formulas for calculating: 1) GDP using the income, expenditure, and value added methods. GDP includes economic activity that occurs within a country's borders. 2) GNP by adding net factor income from abroad to GDP. 3) NNP by subtracting depreciation from GNP. 4) NNPFC by subtracting net indirect taxes from NNP. NNPFC is another measure of national income. 5) Other related concepts like private income, personal income, and personal disposable income. It also discusses the distinction between intermediate and final goods.

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Rounak Basu
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401 views4 pages

National Income and Related Aggregates: Important Formulae

This document defines key concepts related to national income and GDP. It provides definitions and formulas for calculating: 1) GDP using the income, expenditure, and value added methods. GDP includes economic activity that occurs within a country's borders. 2) GNP by adding net factor income from abroad to GDP. 3) NNP by subtracting depreciation from GNP. 4) NNPFC by subtracting net indirect taxes from NNP. NNPFC is another measure of national income. 5) Other related concepts like private income, personal income, and personal disposable income. It also discusses the distinction between intermediate and final goods.

Uploaded by

Rounak Basu
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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NATIONAL INCOME AND RELATED AGGREGATES

KEY POINTS:
 For any income /expenditure /good or service to be included in GDP (Domestic factor income), it
should
i) be an economic activity.
ii) accrue within domestic territory.
 For any item to be included in National Income (NNPfc), it should
i) be an economic activity.
ii) be earned or accrue to the normal resident of the country.
 Any good can be an intermediate good or a final good depending upon its usage. If it is to be used
by final consumer or is used as fixed asset , then it is a final good. If the good/service is still
inside the production boundary i.e still inside the production boundary i.e it is either processed
further or is brought for resale, then it is an intermediate product.
 Following items will not be included in the estimation of GDP or National Income
a) Illegal income s
b) Transfer incomes/ Transfer payments
c) Sale / Purchase of second hand goods.
d) Value of intermediate goods.
e) Windfall gains & capital gains.
f) Financial transactions like sale and purchase of shares atc.

IMPORTANT FORMULAE
Estimation of National Income
1) Estimation of GDPMP (Income method/ Expenditure method/Value added method)
2) GNPMP = GDPMP + NFIA
3) NNPMP = GNPMP - Depreciation
4) NNPFC = NNPMP - Net indirect taxes
5) NFIA = Factor income from abroad - Factor income to abroad
6) Net Indirect Taxes = Indirect taxes - Subsidies
Estimation of GDPMP
1. Income Method
NDPFC = Compensation of employees + Operating surplus + Mixed income of self employed
2. Expenditure Method
GDPMP = Private final consumption expenditure + Government final consumption expenditure +Gross
domestic capital formation + Net exports.
3. Value Added Method
i) Value of output = Sales + Change in stock.
ii) GVAMP of GDPMP = Value of output - Intermediate consumption.
Estimation of Private Income, Personal Income & Personal Disposable Income.
PRIVATE INCOME
i) Income from domestic product accruing to private sector= NDPFC - Income from property and
entrepreneurship accruing to government administrative departments- savings of non departmental
enterprises
ii) Private Income= Income from domestic product accruing to private sector + NFIA + All current
transfers (Interest from national debt, Transfer payment from abroad, Transfer payment from Rest of the
world)
PERSONAL INCOME

Personal Income= Private Income - retained earnings- Corporate tax

PERSONAL DISPOSABLE INCOME

Personal Disposable Income = Personal Income - Personal taxes- Miscellaneous receipts of government

Estimation of National Disposable Income

Net National Disposable Income = National Income + NIT + Net current transfers from ROW
Gross National Disposable Income = NNDI + Depreciation (Current replacement cost)

1 Mark Question

1. Give an example each of stock and flow.


2. Butter is always a final product. Comment.
3. Capital formation is a flow. Justify.
4. National Income includes only final goods. Why?
5. Identify the basis of distinction between intermediate goods and final goods.
6. Name the two sectors in which real flow takes place in a simple economy.
7. In National Income a stock concept or flow concept? Why?
8. When will GDP of an economy be equal to GNP?
9. Identify one way in which the problem of double counting may be avoided.
10. How is National Income at current price different from National Income at constant prices.

3-4 MARK QUESTIONS

1. Distinguish between consumer goods and capital goods. Which of these are final goods?
2. "Machine purchased is always a final good". Do you agree? Give reasons for your answer.
3. Distinguish between domestic product and national product. When can domestic product be more
than national product?
4. Give the meaning of Nominal GDP and Real GDP. Which of these is the indicator od economic
welfare?
5. Explain how 'Non monetary exchanges are a limitation in taking GDP as index of welfare.
6. Explain how distribution of GDP is its limitations in taking as a measure of economic welfare?
7. Explain the problem of Double counting in the estimation of National income bt Value added
method.
8. How can the problem of Double counting be avoided?
9. Discuss any two precautions required while estimating National Income.
10. State whether the following is a Stock or Flow:
i) Wealth
ii)Cement Production
iii) Money supply
iv) Change in nation's money supply.

NUMERICAL PROBLEMS (3 Marks)

1. From the following data, Calculate net value added at factor cost by a firm.

Particulars Rs in lakhs
Subsidy 40
Sales 800
Depreciation 30
Exports 100
Closing stock 20
Opening Stock 50
Intermediate 500
purchases
Purchase of 200
machinery for own
use
Import of raw 60
material

2. Calculate ' Value of Output' from the following data.

Particulars Rs in lakhs
NVAFC 100
Intermediate 75
consumption
Excise duty 20
Subsidy 5
Depreciation 10

3. Calculate ' Intermediate consumption' from the following data.

Particulars Rs. in Lacs


Value of output 200
Net value added at fc 80
Sales Tax 15
Subsidy 5
Depreciation 20

4. Calculate 'Sales' from the following data.


Particulars Rs. in Lacs
NVAFC 300
Intermediate 200
consumption
Indirect taxes 20
Depreciation 30
Change in stocks -50

5. Calculate gross value added at factor cost.

Particulars Rs. in Lacs


Units of output sold 1000
Price per unit of 30
output
Depreciation 1000
Intermediate Cost 12000
Closing stock 3000
Opening Stock 2000
Excise duty 2500
Sales tax 3500

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