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National income 50+70 book (Importance of national income (Formulation…
National income
50+70 book
Product method
Output method
Value added method
Introduction
Final value of goods and services
During an economic year
Money value G&S, market price
Sum total GDP, market price
Avoid double counting, value addition method
Final good, sum total of intermediate goods
Procedure
Classify economy different sectors
Agriculture, mining, manufacturing, trade etc
Estimate total value of output
Estimate intermediate consumption
Value, raw material fuels etc
Detect intermediate consumption
= Gross added value
Detect consumption of fixed capital, depreciation
=Net added value
+subsidy
indirect taxes
=Net value factor cost
Add income from abroad
Net national product (FC)
Precautions
Self consumption excluded
Imputed rent excluded
Second hand goods excluded
Income method
National income =flow of factor incomes
Four types of production
Land labour capital entrepreneurship
Labour wages and salary
Capital interest
Land rent
Entrepreneurship profit
Self employed, labour + capital
Mixed income
Procedure
Divide economy into different sectors
Classify factor payments
Summing of all factor payments
NDP(Fc)
Major factor payment
Income payout to each unit
Precautions
Cash or kind compensation included
Interest on loan only, production activities
Imputed rent included
Houses provide services who occupy them
Transfer payment not included
Windfall gains not included
Expenditure method
National income=flow of expenditure
Consumption + saving
Components
Consumption
Personal consumption of households
Payment made to firms, who produce G&S
Investment expenditure
Investment= addition to capital stock of economy (given period)
Investment by firms nd government sector
Government expenditure
G&S purchased by the government
Schemes not included, transfer payment
Net exports, difference
Sum total of above 4
=GDP (MP)
Precautions
Expenditure, second hand goods not included
Expenditure, old shares and bonds not included
Transfer payments not included
Fertilizer seeds wool cotton not included
Importance of national income
Formulation and implementation of policies
Comparative analysis between Nations
Measuring, change in standard of living
Reviews internal strength, health of economy
Predict future prospects
Inflationary tendencies
Anti inflation policies
Budgetary policies
Taxations and boring policies, reference to NI
Distribution of grants
International sphere
IMF UNO ABD
Limitations of national income
No measure of social welfare
Economic welfare and social welfare, co related
Non monetary non, market transactions not included
Household work not included
Different methods of estimation, depreciation
Capital gains and capital losses not included
Difficulty in measuring inflation
New product comes, old become obsolete
Distorted by black economy
Not 100% accurate
People provide inaccurate information, informal sector