FORMULAS & NUMERICAL PROBLEMS RELATED TO MEASUREMENT OF NATIONAL INCOME

MEASUREMENT OF NATIONAL INCOME

INCOME METHOD
1.

EXPENDITURE METHOD

PRODUCT METHOD

INCOME METHOD :
Mixed Income of Self Employed

Net Domestic Product At Factor Cost = Compensation Of Employees + Operating Surplus +

1 WAGES & SALARIES CASH AS WELL AS KIND + * COMPENSATION OF EMPLOYEES 2 SOCIAL SECURITY CONTRIBUTION BY THE EMPLOYER + 3 RETIREMENT PENSION

1 RENT +

* OPERATING SURPLUS

2 INTEREST + 3 PROFIT Dividend Corporate Profit Ta Undistributed Profit

CONVERSIONS
NET
( + )DEPRECIATION ( - ) DEPRECIATION

> GROSS

DOMESTIC

( + )NET FACTOR INCOME FROM ABROAD ( - )NET FACTOR INCOME FROM ABROAD

> NATIONAL

FACTOR COST

___( + )NET INDIRECT TAXES

> MARKET PRICE

( - )NET INDIRECT TAXES

Net Indirect Ta = Indirect Ta Subsidies Net Factor Income from Abroad = Factor Income from abroad Factor Income To abroad

2.

EXPENDITURE METHOD

Gross Domestic Product At Market Price = Private Final Consumption Expenditure + Govt. Final Consumption Expenditure + Gross Domestic Capital Formation + Net Exports Gross Domestic Capital Formation = Gross Domestic Fixed Formation + Change in Stock Net Exports = Exports Imports

CONVERSIONS
NET
( + )DEPRECIATION ( - ) DEPRECIATION

> GROSS

DOMESTIC

( + )NET FACTOR INCOME FROM ABROAD ( - )NET FACTOR INCOME FROM ABROAD

> NATIONAL

FACTOR COST

( + )NET INDIRECT TAXES ( - )NET INDIRECT TAXES

> MARKET PRICE

Q. From the following data calculate GNP at factor cost by Income Method & E penditure Method
Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 Items Net Domestic capital formation Compensation of employees Consumption of fi ed capital Govt. Final consumption E penditure Private Final consumption E penditure Rent Dividend Interest Net E ports Profits Net Factor Income From Abroad Net Indirect Ta es Rs. in Crore 500 1850 100 1100 2600 400 200 500 (-) 100 1100 (-) 50 250

Sol : Income Method GNP FC = Compensation of employees + ( Rent + Interest + Profits ) + Consumption of fi
ed capital +

Net Factor Income From Abroad

GNP

FC

= 1850 + (400 +500 +1100) + 100+ (-)50

= 3900 CRORE

EXPENDITURE METHOD GNP FC = Private Final consumption E

penditure + Govt. Final consumption E penditure + ( Net Domestic

capital formation + consumption of fi ed capital) + Net E ports + Net Factor Income From Abroad - Net Indirect Ta es

= 1100 +2600 + (500 +100) + (-) 100 + (-)50 250 = 3900 CRORE

From the following data calculate National Income by Income and Expenditure methods:
(Rs crore) (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) (xiv) (xv) Government final consumption expenditure Subsidies Rent Wages and salaries Indirect taxes Private final consumption expenditure Gross domestic capital formation Social security contributions by employers Royalty Net factor income paid to abroad Interest Consumption of fixed capital Profit Net exports Change in stock 100 10 200 600 60 800 120 55 25 30 20 10 130 70 50

Sol : Income Method

National Income = iv + viii + (iii + i ) + i + iii = 600 + 55 + (200 +25) + 20 +130 -30 = Rs 1,000 crore

E penditure Method
National Income = vi + i + vii + iv v + ii ii = 800 + 100 + 120 + 70 60 + 10 10 30 = Rs 1,000 crore

Q. From the following data calculate (a) Gross Domestic Product at Market Price , and (b) Factor Income from Abroad: Items Rs in crore i) Gross national product at factor cost 6,150 ii) Net exports (-)50 iii) Compensation of employees 3,000 iv) Rent 800 v) Interest 900 vi) Profit 1,300 vii) Net indirect taxes 300 viii) Net domestic capital formation 800 ix) Gross fixed capital formation 850 x) Change in stock 50 xi) Dividend 300 xii) Factor income to abroad 80 Solution:

(a) Gross Domestic Product at Market Price

= Compensation of employees+ Rent+ Interest+ Profit +Mixed income+ Net indirect taxes+ Consumption of fixed capital Note: Consumption of fi ed capital= Gross fi ed capital formation+ Change in stock- Net domestic capital formation =Rs 3,000crore+ Rs 800 crore+ Rs 900 crore+ Rs 1,300 crore+ Rs 0crore+ Rs 300 crore+ (Rs 850 crore+ Rs 50 crore- Rs 800 crore) = Rs 3,000crore+ Rs 800 crore+ Rs 900 crore+ Rs 1,300 crore+ Rs 0crore+ Rs 300 crore+ Rs 100 crore = Rs 6,400crore

(b) Factor Income from Abroad

Gross national product at Market Price = Gross national product at factor cost+ Net indirect taxes = Rs 6,150crore+ Rs 300crore = Rs 6,450crore

Net Factor Income from Abroad

= Gross national product at Market Price- Gross Domestic Product at Market Price = Rs 6,450crore- Rs 6,400crore = Rs 50crore Net Factor Income from Abroad = Factor Income from Abroad - Factor income to abroad Or Factor Income from Abroad = Net Factor Income from Abroad+ Factor income to abroad = Rs 50crore+ Rs 80crore = Rs 130crore

PRODUCT METHOD OR VALUE ADDED METHOD

GDP MP = Value of Output intermediate consumption

Sales
* Value of Output Change in Stock (C.S- O.S)

CONVERSIONS
NET
( + )DEPRECIATION ( - ) DEPRECIATION

> GROSS

DOMESTIC

( + )NET FACTOR INCOME FROM ABROAD ( - )NET FACTOR INCOME FROM ABROAD

> NATIONAL

FACTOR COST

( + )NET INDIRECT TAXES ( - )NET INDIRECT TAXES

> MARKET PRICE

Q. Calculate Net Value added at factor cost from the following data :
Sr. No.
1 2 3 4 5 6 7

Items
Purchase of machinary Sales Intermediate Cost Indirect ta es Change in stock E cise Duty Stock of raw material

Rs. In Crore
100 200 90 12 10 6 5

Sol: NVAFC = Sales + Change in Stock Intermediate Cost Indirect Ta es = 200 + 10 90 12 = 108 Crore

Q. An Economy has two firms A & B on the basis of following information find out a) Value added by firm A & B b) GDP at Market Price

Sr. No.
1 2 3 4 5 6

Items
E ports by firm A Imports by firm A Sales to house holds by firm A Sales to firm B by firm A Sales to firm A by firm B Sale to house hold by firm B

Rs. In Lakh
20 50 90 40 30 60

Sol: a) Value added by firm A = Sale to households +Sales to firm B + Exports

Imports Purchase from firm B

= 90 +40+20-50-30 =

70 Lakh

Value added by firm B

= Sales to Firm A + Sales to households purchase from firm A

= 30+60-40 = 50 Lakh

b) GDP MP = Value added by firm A + value added by Firm B = 70+50 = 120 Lakh

FORMULAS RELATED TO PRIVATE, PERSONAL & PERSONAL DISPOSABLE INCOME

1. FACTOR INCOME FROM NET DOMESTIC PRODUCT OCCURING TO PRIVATE SECTOR = NDP
FC

PROPERTY & ENTREPRENEURIAL INCOME OF THE

DEPARTMENTAL ENTERPRISES OF THE GOVT. SAVING OF NONDEPARTMENTAL ENTERPRISES

2. PRIVATE INCOME = FACTOR INCOME FROM NET DOMESTIC PRODUCT OCCURING TO PRIVATE SECTOR + NET FACTOR INCOME FROM ABROAD + CURENT TRANSFERS FROM GOVT. + CURENT TRANSFER FROM REST OF THE WORLD + INTEREST ON NATIONAL DEBT 3. PERSONAL INCOME = PRIVATE INCOME CORPORATE PROFIT TAX UNDISTRIBUTED PROFITS

4. PERSONAL DISPOSABLE INCOME = PERSONAL INCOME DIRECT PERSONAL TAX MISC. FEES & FINE PAID BY THE HOUSEHOLDS

NOTE :

PRIVATE, PERSONAL & PERSOBAL DISPOSABLE INCOME ARE DEPENDANT UPON EACH OTHER

FROM THE FOLLOWING DATA ESTIMATE : a. PERSONAL INCOME b. PRIVATE INCOME c. PERSONAL DISPOSABLE INCOME

Sr. No.
1 2 3 4 5 National Income Corporate Profit Ta Direct Personal Ta

Items
15 40 25 35

Rs. in Crore
1300

Saving of Private Corporate Sector Income from Property & Entrepreneurship occurring to Administrative Department

6 7 8 9

Current Transfers from Govt. National Debt Interest Saving of non-departmental public enterprises Current transfers from rest of the world

30 10 5 15

Sol : a.

PERSONAL INCOME = National Income Income from property and entrepreneurship accruing to Govt.
administrative departments Saving of non-departmental public enterprises + National debt interest + Current transfers from the govt. administrative departments + Current transfers from rest of the world saving of private corporate sector corporate profit ta

= 1300

35-5+10+30+15-25-15

= 1275
b) PRIVATE INCOME = Personal Income + Corporate Profit ta + Saving of private corporate sector = 1275 + 15 + 25 = 1325 Crore c) Personal Disposable Income = Personal Income Direct Personal ta es = 1275 40 = 1235 Crores

Q. From the following data, calculate a) Private Income

b) Personal Disposable Income

Sr. No. 1 2 3 4 5 6 7 8

Items Income from domestic product accruing to the private sector Saving of non-departmental public enterprises Current transfers from govt. administrative departments Savings of private corporate sector Current transfers from rest of the world Net factor income from abroad Corporation tax Direct personal taxes

Rs.in Crore) 4,000 200 150 400 50 (-40) 60 140

Sol: a) Private Income = Income from domestic product accruing to private sector + Current
transfers from govt. administrative departments + Current transfers from rest of the world + Net factor income from abroad

= 4000+150+50+(-40) = 4160 Crore

b)

Personal Disposable Income = Private income Savings of private corporate

Sector corporation tax Direct personal taxes. = 4160-400-60-140 = 4160-600 = 3560 Crores

Q. 24. Calculate Private Income from the following data : Sr. No.
1 2 3 4 5 6 7

Items
National debt interest Gross national product at market price Current transfers from govt. Net indirect ta es Net current transfers from the rest of the world Net domestic product at factor cost accruing to govt. Consumption of fi ed capital

Rs. In Crore
30 400 20 40 (- ) 10 50 70

SOL : PRIVATE INCOME = Gross National product at market price Net domestic product at factor cost accruing to govt. net indirect ta es Consumption of fi ed capital + National debt interest + Current transfers from govt. + Net current transfers from the rest of the world.

= 400 50 -70 -40-30+20+(-10) = 400 50 -70 -40-30+20-10 = 280 Crores ==================================

Net National Disposable Income = Net Domestic Income + Net Indirect Taxes + Net factor income from abroad + net current transfers from rest of the world.

Gross National Disposable Income = Net National Disposable Income + Current replacement cost (depreciation)

Q. Calculate Net National Product at factor cost and Gross National Disposable income from the following : Sr. No.
1 2 3 4 5 6 7 8 9 10 11

Item
Profit Net Current transfer to Abroad Royalty Wages & Salaries Consumption of fixed capital National Debt interest Interest paid by Production Unit Social Security contribution by employers Net factor income paid to Abroad Rent Net indirect tax

Rs. In Crores
200 (-) 10 10 600 60 80 120 100 (-) 20 50 70

Sol : NNPFC =

Wages & Salaries + Profit + Royalty + Rent + Interest Paid by Production Unit + Social security contribution paid by employers Net factor income to abroad

= 600+200+10+50+120+100-(-20) = 1100 Crores

Gross National Disposable Income = NNPFC+ Consumption of fixed capital + Net indirect tax Net
current transfers to abroad
=

1100 +60+70 (-10)

= 1240 Crores Q. Find out (a) National Income , & (b) Net National Disposable Income :
Sr. No. 1 2 3 4 5 6 7 8 9 10 Items
Net domestic fixed capital formation Factor income from abroad Change in stock Net Indirect tax Net current transfer to abroad Private final consumption expenditure Consumption of fixed capital Govt. Final Consumption Expenditure Net factor income to abroad Net imports

Rs. In Crores 200 30 (-) 20 120 (-) 10 800 100 300 40 (-) 50

(a) National Income

: = Private final consumption expenditure + Govt. Final Consumption Expenditure + Net domestic fixed capital formation + Change in stock - Net imports - Net Indirect tax - Net factor income to abroad
= 800 + 300 + 200 + (-) 20 (-) 50 -120 40 = 800 +300+200-20+50-120-40 = 1170 Crores

(b) Net National Disposable Income = National Income + Net Indirect

tax Net Current transfer to abroad

= 1170 +120- (-) 10 = 1170+120+10 =1300 Crores