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National Income and Related Aggregates

National income (NY) is equal to domestic output (DY) plus net factor income from abroad (NFIA). NFIA is income earned by residents from the rest of the world minus payments to non-residents. Market price (MP) is the price goods are sold at in the market, while factor cost (FC) is the amount paid to production factors. Gross value is net value plus depreciation, while net value is gross value minus depreciation. National income can be calculated using the income method by adding the different factor incomes from the economy, such as compensation of employees, operating surplus, and mixed income of the self-employed.

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2K views11 pages

National Income and Related Aggregates

National income (NY) is equal to domestic output (DY) plus net factor income from abroad (NFIA). NFIA is income earned by residents from the rest of the world minus payments to non-residents. Market price (MP) is the price goods are sold at in the market, while factor cost (FC) is the amount paid to production factors. Gross value is net value plus depreciation, while net value is gross value minus depreciation. National income can be calculated using the income method by adding the different factor incomes from the economy, such as compensation of employees, operating surplus, and mixed income of the self-employed.

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MACROECONOMICS

PART-B
NATIONAL INCOME AND
RELATED AGGREGATES
FORMULAS
• NY = DY + NFIA
• DY = NY –NFIA
• NY(NATIONAL INCOME) :It refers to the net market
value of all the final goods and services produced by
the normal residents of a country during an
accounting year.
• NFIA:NET FACTOR INCOME FROM ABROAD
• NFIA =Income earned by residents from ROW-
payments to non-residents within domestic territory.
COMPONENTS OF NFIA
• Net compensation of employees
• Net income from property and
entrepreneurship
• Net retained earnings of resident copanies
abroad.
Cases

• Income paid to abroad is given, then to make


NFIA inverse the sign.
• If income from abroad and income paid to
abroad both are given, then NFIA is the
difference between them.
FORMULAS
• MP =FC + NIT
• FC = MP –NIT
• Market price (MP):It refers to the price at
which product is actually sold in the market.
• Factor cost (FC): It refers to amount paid to
factors of production for their contribution in
the production process.
• NIT = INDIRECT TAX - SUBSIDIES
CASES
• Subsidy is given, then to make NIT inverse the
sign.
• If IT is given, then NIT = IT
• If IT and net subsidy both are given, then ignore
IT and inverse the sign o f Net subsidy .
• If sales tax and excise duty are given, then by
adding both, we get indirect taxes.
• If Net subsidy is given, then to convert it into
NIT , inverse the sign.
formulas
• GROSS = NET + DEPRECIATION
• NET = GROSS – DEPRECIATION
• Other names of depreciation are:
• Consumption of fixed capital.
• Capital consumption allowance.
• Current replacement cost.
METHODS FOR CALCULATING NY
• INCOME METHOD
• Production creates income. add different
factor incomes from the economy to get
national income.
• NDPfc = compensation of employees(COE)
+Operating surplus + mixed income of self
employed.
components
• COE =Wages and salaries payable in cash/kind
• + Pension at the time of retirement
• + Employers contribution to social
security schemes.
• OS = Income from property (rent, interest and
royalty ).
• Income from entrepreneurship (profit).
• Mixed income of self employed.
PROFIT
• Distributed profit (Dividend)
• Undistributed profit ( Savings of private corporate sector or
Retained earnings)
• Corporation tax (profit Tax)
• NOTE:
• Profits earned by one firm to another should not be included
as it is the part of intermediate consumption.
• If profit after tax is given and corporate tax is given, then by
adding we get profit.
• If profit before tax and corporate tax are given, then ignore
corporate tax.

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