# National Income

National Income Part 1

1. How are people classified?

People are classified into three types namely poor, rich and middle class people based on their individual income.

1. How are countries classified?

Countries are classified into two types as developed country and developing country based on their national income.

1. What is the measure for checking development of a country?

National Income

1. What is national income?

National income is measure of the total value of goods and services produced by an economy over a period of time, normally one year.

1. What is Gross National Product?

Commonly national income is called as Gross National Product or National Dividend. It is the total value of goods and services produced and income received in a year by domestic residents of a country.

1. What is Gross Domestic Product?

Gross Domestic Product is the total value of goods and service produced by the factor of production within the geographical boundaries of a country.

1. What tells about the value of output produced and income received in a year by domestic residents of a country?

Gross National Product

1. What is Net National Product?

Net National Product is arrived by making some adjustment with regard to deprivation. That is we arrive at NNP by deducting the value of deprivation from Gross National Product.

1. What is the formula for calculating NNP?

NNP = GNP (-) Deprivation

1. What is the indicator used to show the living standard of people in a country?

Per Capita Income

1. When there is increase in Per Capita income how does it affect the people?

When there is increase in Per capita income it result in increase of peoples standard of living.

1. What is per capita income?

It is obtained by dividing the national income by that of the population of the nation.

1. How is Per Capita income calculated?

Per Capita Income = Nation Income / Population

1. What is the per capita income of India as per the USA report?

\$1670

1. Country Per Capita Income (in \$)

Japan 38,894.47 \$

America 52,194.90 \$

England 41,602.98 \$

1. How can we calculate National Income?

Product method, income method and expenditure method.

1. What is the main cause for miscalculation in national income?

Black Money

1. What is black money?

Black money is nothing but the unaccountable money. That is earned through illegal activities, illegal business and money through corruption.

1. In rural economy the transaction occurs informally. How is it called as?

Non –monetization

1. How does non-monetization affects our country?

It leads to miscalculation in the national income.

1. What are the activities ignored by National Income?

Domestic work, housekeeping, social service, volunteer activities and unpaid social services.

1. What are primary sectors?

Primary sectors include activities such as agriculture, forestry, fishing, mining and quarrying.

1. What are secondary sectors?

Secondary sectors include activities such as manufacturing industries, electricity, gas, water supply and construction.

1. What are service sector?

Service sector includes activities such as trade, hotel, transport, storage, communication, finance, insurance, real estate and social services.

1. What are the sectorial growth rates of National Income?

Primary Sector – 17.32%

Secondary Sector – 29.02%

Tertiary Sector – 53.66%

1. What is Laissez-faire policy?

It means non intervention of government.

1. What are roles of government?

Protective function, administrative function, social security function and economic functions.

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National Income Part 2

1. What is the standard of measure of income and output?

The standard measures of income and output are

• Gross National Product (GNP),
• Gross Domestic Product (GDP),
• Gross National Income (GNI),
• Net National Product (NNP), and
• Net National Income (NNI).
1. Who estimated National Income in India?

In India, the Central Statistical Organisation has been estimating the national income.

1. What is the indicator on national income?

Indicators of national income are GDP or GNP

1. What is the indicator of standard of living or welfare?

National income per person or per capita income is often used as an indicator of people’s standard of living or welfare.

1. What is national income?

National income is a measure of the total value of the goods and services (output) produced by an economy over a period of time (normally a year). It is also a measure of the income flown from production, and/or the sum total of all the spending involved for the production of output.

1. What is the definition of national income by Marshall?

“The labour and capital of the country acting on its natural resources produce annually a certain net aggregate of commodities, material and immaterial, including  services of all kinds… This is the net annual income or revenue of the country, or the national dividend.”

1. Name some definition of national income?
• Irving Fisher: “The national dividend or income consists solely of services as received by ultimate consumers, whether from their material or from their human environment.”
• National Income Committee of India,: “ National income estimate measures the volume of commodities and services turned out during a given period counted without duplication.”
• Paul A. Samuelson: “ Gross national product (GNP) is the most comprehensive measure of a nation’s total output of goods and services. It is the sum of the dollar (money) value of consumption, gross investment, government purchase of goods and services and net exports”.
1. What are the basic concepts of national income?
• Gross National Product Gross National Product (GNP) is the total value of output (goods and services) produced and income received in a year by domestic residents of a country. It includes profits earned from capital invested abroad.
• Gross Domestic Product Gross Domestic Product (GDP) is the total value of output (goods and services) produced by the factors of production located within the country’s boundary in a year. The factors of production may be owned by any one – citizens or foreigners.
• GNP – Net income earned from abroad = GDP Thus, GDP measures income from where it is earned rather than who owns the factors of production.
1. Expand NNP?

Net National Product

1. How is NNP arrived?
• Net National Product (NNP) is arrived at by making some adjustment, with regard to depreciation, in GNP.
• GNP – Depreciation = NNP
1. What is Net domestic product?
• Net domestic product (NDP) is also arrived from GDP by making adjustment with regard to depreciation in the same way described above.
• (NDP is calculated by deducting depreciation from GDP)
• GDP-Depreciation = NDP
1. What is per capita income?
• Per capita income (or) output per person is an indicator to show the living standards of people in a country. If real PCI increases. it is considered to be an improvement in the overall living standard of people.
• PCI is arrived at by dividing the GDP by the size of population. It is also arrived by making some adjustment with GDP.
• PCI = ————-GDP————————————–

Total number of people in a country

1. What is GDP?

GDP indicates productive capacity of an economy.

1. What is GNP?

GNP is a crude indicator for living standard.

1. How is measure based on current prices done?

The measure based on current price uses the ongoing market prices to compute the value of output

1. How is constant price computed?

As the national income at ‘constant price’ is computed based on the real worth of the purchasing power of income, it is also called as ‘real national income’ or national income in ‘real’ terms.

1. Why is national income important?
• To measure the size of the economy and level of country’s economic performance.
• To trace the trend or speed of the economic growth in relation to previous year(s) as well as to other countries.
• To know the structure and composition of the national income in terms of various sectors and the periodical variations in them.
• To make projection about the future development trend of the economy.
• To help government formulate suitable development plans and policies to increase growth rates.
• To fix various development targets for different sectors of the economy on the basis of the earlier performance.
• To help business firms in forecasting future demand for their products.
• To make international comparison of people’s living standards.

18. What is circular flow of income?

• The circular flow of income is explained with a simplest model consisting business (firms or producers) and public (households or consumers).
• The public own the productive resources (i.e. factors of production namely land, labour and capital).
• Business sector or producers employ the factors of production to produce the goods and services. Such goods and services are bought by the public.
• Thus public own the factors of production and provide them to producers.
• The producers employ the factor inputs to produce output of goods and services, which is bought by the consumers (public).
• For the employment of factor services, the public receive the factor income namely rent (for land), wages (for labour) and interest (for 44 capital).
• This income flows back from the public to the business sector as consumption expenditure to buy the goods and services.
1. What are the methods of calculating national income?

There are three different methods of calculating national income. They are

1. Product or Output Method
2. Income Method
3. Expenditure Method
4. What are the income included for income method?
• Wages and salaries
• Income of self-employed
• Profits and dividends of business corporations
• Interest
• Rent
• Surplus of government enterprises
• Net flow of income from abroad
1. What are the essential components of expenditure method?
• C = consumption expenditures
• I = domestic investment
• G = government expenditures
• X = exports of goods and services
• M = imports of goods and services
• NR = net income receipts from assets abroad
• The sum of all these aggregate expenditure provides us the measure of national income.
• GDP = E = C + I + G + (X-M)
1. What are the identities of national income?
• NNP = GNP – Depreciation
• NNI = NNP -Indirect taxes
• PI = NNI – Retained earnings,
• corporate taxes and interest on public debt
• PDI = PI – Personal taxes.
• Where, GNP – Gross National Product NNP – Net National Product NNI – Net National Income PI – Personal Income PDI – Personal Disposable Income
1. What are the problems in calculating national income?
• Black Money
• Non-Monetization
• Growing Service Sector
• Household Services
• Social Services
• Environmental Cost
1. What is the trend in national income?

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