National income: concept, methods, Importance and challenges

In this presentation you are going to know about the concept of national income, circular flow of income under four sector economy its methods, Importance and the challenges faced by government in calculation of national income

1. National Income By :– Team udaan

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

4. Circular Flow of Income

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 Product method Income method 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 D efinition of the term “nation” in National Income C hoice of method for measuring the National Income O nly goods & services having monetary value included S tage 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