uSltFSS FC0t0HlCS PR0JFCT

SuHlTF0 T0. - SuHlTTF0 Y. -

0R. HlRAtH0Y R0Y R0ll t0.. - 1-12
A (0ll & 6AS)
m.+:-.: -, V+:.--+: ---. x/+: +-. :/. .,,.-.-: .:/-: -, -+:-:+:.-, V+:.--+:
---. x/+: +-. :/. .,,.-::..: .- -+:-:+:.-, V+:.--+: ---. .:/ :e.-.+: -.,.-.--. :-
.-.:-e.-, ---:-..:i

Nat|ona| Income |s the |ncome of a country
naLlonal lncome ls deflned as Lhe value of all flnal goods and servlces produced by
Lhe normal resldenLs of Lhe counLry weaLher operaLlng wlLhln Lhe domesLlc
LerrlLory of Lhe counLry or ouLslde ln a year
Accordlng Lo S|mon kuznets "the net output of commod|t|es and serv|ces
f|ow|ng dur|ng a year from the country's product|ve system |nto the hands of
the consumers or |nto add|t|on to the country's cap|ta| goods"
Accordlng Lo I L nansen "Nat|ona| |ncome can e|ther be regarded as the
money va|ue of the tota| vo|ume of product|on of goods and serv|ces or the
tota| of a|| |ncomes der|ved from econom|c act|v|ty dur|ng spec|f|c per|od
genera||y one year"
1he level of naLlonal lncome deLermlnes Lhe level of aggregaLe demand for goods
and servlces 1he Lrend ln naLlonal lncome deLermlnes Lhe Lrends ln aggregaLe
demand and also Lhe buslness prospecLs naLlonal lncome represenLs Lhe mosL
comprehenslve measure of Lhe level of economlc acLlvlLy and lndex of economlc
growLh of an economy
naLlonal lncome concepL has three lnLerpreLaLlons
a) lL represenLs tota| va|ue of product|on
b) lL represenLs tota| rece|pts and
c) lL represenLs tota| expend|ture


ln naLlonal lncome
NA1ICNAL CU1U1 NA1ICNL LkLNDI1UkL NA1ICNAL INCCML
Cutput Lhe LoLal ouLpuL of goods and servlces becomlng avallable Lo Lhe naLlon
ln Lhe course of one year
Lxpend|ture Lhe sum of expendlLures on consumpLlon goods and servlces and
lnvesLmenL goods
Income Lhe sum of facLor lncomes pald ouL for servlces rendered ln produclng
Lhe naLlonal ouLpuL
$.-:--: .- :/. 5----,.-
1he economy ls dlvlded lnLo four secLors
1) Pousehold secLor 1hese are Lhe owners of Lhe facLors of producLlon land
labour caplLal 1hey sell Lhe servlces of Lhese facLors Lo producers and ln reLurn
recelve Lhelr lncome 1hey spend a large parL of lncome ln purchaslng of goods
and servlces from Lhe producers
2) roducer secLor1hls secLor ls engaged ln Lhe producLlon of goods and
servlces ln economlcs we use Lhe Lerms buslness secLor producers and flrms
lnLerchangeably 1hls secLor ls Lhe prlnclpal buyer of facLors of producLlon and
maln producers of commodlLles and servlces
3) CovernmenL 1hls secLor performs a wlde varleLy of economlc funcLlons ln a
modern economy CovernmenL can acL as boLh roducers and Consumers lL
geLs lLs lncome largely from Laxes lmposed on households and buslness secLor
and ln reLurn buys Lhe goods and servlces from producers and facLor servlces
from households
4) 8esL of Lhe world lfferenL secLors of Lhe economy have LransacLlons noL
only wlLh each oLher buL also wlLh forelgn counLrles le 8esL of Lhe world A
counLry exporLs goods and oLher servlces Lo oLher counLrles and slmllarly lL
lmporLs goods and servlces from oLher counLrles ln Lhe same way facLor servlces
move across Lhe border of a counLry and Lhe flrms of one counLry may purchase
Lhe facLor servlces from oLher counLrles
3) llnanclal lnsLlLuLlons 1hls secLor ls engaged ln Lhe acLlvlLy of borrowlng and
lendlng of money lL refers Lo Lhe money markeL and caplLal markeL ln Lhe
economy along wlLh varlous flnanclal lnsLlLuLlons llke commerclal banks
lnsurance companles and sLock exchange
.--:+- ,:- -, .---..-
lL ls deflned as Lhe flow of paymenLs and
recelpLs for goods and servlces and facLor servlces beLween dlfferenL secLors of
Lhe economy
kea| I|ow lL lmplles Lhe flow of facLor servlces llke servlces of land labour
caplLal and enLrepreneurshlp from Lhe household secLor Lo Lhe produclng secLor
and Lhe correspondlng flow of goods and servlces from Lhe produclng secLor Lo
Lhe household secLor
Money I|ow Money flow refers Lo Lhe flow of facLor lncome vlz renL lnLeresL
proflL and wages from Lhe produclng secLor Lo Lhe household secLor as moneLary
rewards for Lhelr facLor servlces 1he households spend Lhelr lncomes on Lhe
goods and servlces produced by Lhe produclng secLor Accordlngly money flows
back Lo Lhe produclng secLor
1WC SLC1Ck MCDLL ln Lhls we lmaglne a hypoLheLlcal slLuaLlon where Lhere
ls no governmenL and whlch has no relaLlon wlLh Lhe resL of Lhe world Lhls secLor
sells Lhe facLor servlces Lo Lhe flrm and recelves lncome from Lhem ln Lhe form of
wages renL lnLeresL and proflLs 1he money paymenLs made by Lhe flrms Lo
households are Lhe cosLexpendlLures for Lhe flrms and facLor lnpuLs for Lhe
households llrms or Lhe producLlon unlLs use Lhese facLors lnpuLs Lo produce
goods and servlces whlch are sold Lo Lhe households 1he lnLeracLlon of Lhe flrms
and household secLor pays for Lhese goods ln Lhe form of money and Lhereby
flrms recelve money paymenLs from Lhe households
Pouseholds ln reallLy do noL spend Lhe enLlre parL of
Lhelr lncome on consumpLlon lnsLead Lhey save parL of Lhelr lncome ln Lhe form
of savlngs ln flnanclal lnsLlLuLlons (malnly commerclal banks lnsLlLuLlons eLc)
1hese lnsLlLuLlons use Lhese savlngs for furLher lnvesLmenLs ln producer secLor
1he producer secLor uses Lhese savlngs Lo produce goods and servlces 1hus ln a
Lwo secLor model Lhere ls a vlLal role of Lhe flnanclal lnsLlLuLlons ln provldlng loans
Lo Lhe producer secLor


1WCSLC1C8 MCLL

ICUk SLC1Ck MCDLL
ln an open economy Lhe lnLeracLlon beLween Lhe
domesLlc economy and Lhe resL of Lhe world Lakes place Lhrough flow of goods
and servlces (lnLernaLlonal Lrade) and flows of facLor servlces 1he household
secLor buys goods lmporLed from abroad and makes paymenLs Lo Lhe forelgn
secLor Cn Lhe oLher hand Lhe household secLor recelves 'forelgn remlLLance' ln
forelgn exchange by selllng some of Lhe facLor servlces abroad and Lhey may
remlL lncome Lo Lhelr famllles ln lndla 1hus Lhere ls ouLflow of expendlLure from
household Lo Lhe forelgn secLor Lo pay for Lhe lmporLed goods and lnflow of
lncome for Lhe servlces rendered by Lhem ln forelgn counLrles
1he buslness secLor exporLs goods and
servlces (llke shlpplng lnsurance and banklng) Lo forelgn counLrles and recelves
paymenLs ln Lhe form of 'recelpLs from exporLs' Cn Lhe oLher hand Lhe buslness
secLor makes paymenL Lo Lhe forelgn secLor for lmporL of goods and servlces 1hls
ls Lhe flow of expendlLure ouL of Lhe economy Llke Lhe buslness secLor modern
governmenLs also exporL and lmporL goods and servlces from Lhe forelgn
counLrles lnflow and ouLflow of lncome affecL Lhe level of clrcular flow of lncome
lf Lhe lnflow of lncome ls equal Lo Lhe ouLflow of lncome Lhen Lhe clrcular flow of
lncome remalns unaffecLed

lCu8SLC1C8 MCLL

tATl0tAl ltC0HF A66RF6ATFS. -
1) Cross omesLlc roducL aL markeL prlce (C
M
) lL ls Lhe value of all flnal
goods and servlces aL prlces prevalllng ln Lhe markeL produced ln Lhe domesLlc
LerrlLory of a counLry durlng a glven year 8elng gross lL lncludes depreclaLlon le
Lhe consumpLlon of flxed caplLal ln Lhe process of producLlon
2) Cross naLlonal roducL aL markeL prlce (Cn
M
) lL ls Lhe aggregaLe markeL
value of all flnal goods and servlces produced by clLlzens of a counLry durlng a
year lL ls Lhe LoLal value of flnal goods and servlces produced ln Lhe domesLlc
LerrlLory of a counLry plus neL facLor lncome from abroad
3) neL omesLlc roducL aL markeL prlce (n
M
) lL ls Lhe value of all flnal goods
and servlces aL prlces prevalllng ln Lhe markeL produced ln Lhe domesLlc LerrlLory
of a counLry durlng a glven year afLer maklng allowance for deprec|at|on
4) neL naLlonal roducL aL markeL prlce (nn
M
) lL ls Lhe markeL value of all flnal
goods and servlces produced by resldenLs of a counLry durlng a year afLer maklng
allowance for depreclaLlon plus neL facLor lncome from abroad
3) Cross omesLlc roducL aL facLor cosL (C
lC
) lL ls Lhe sum LoLal of earnlngs
recelved by varlous facLors of producLlon on accounL of wages lnLeresL renL
proflLs eLc WlLhln Lhe domesLlc LerrlLory of a counLry ln a year lL measures
facLor lncomes generaLed wlLhln Lhe domesLlc LerrlLory lrrespecLlve of wheLher
generaLed by resldenLs or nonresldenLs
6) Cross naLlonal roducL aL facLor cosL( Cn
lC
) lL ls Lhe sum LoLal of earnlngs
recelved by varlous facLors of producLlon ln Lerms of wages renL lnLeresL eLc by
normal resldenLs of a counLry ln a year lL dlffers from CnM Lo Lhe exLenL of
neL lndlrecL Laxes
7) neL omesLlc roducL aL facLor cosL (n
lC
) lL ls Lhe esLlmaLe of Lhe domesLlc
producL ln Lerms of earnlngs of facLors of producLlon wlLhln Lhe domesLlc LerrlLory
of a counLry ln a year lL dlffers from ClC Lo Lhe exLenL of depreclaLlon
) neL naLlonal roducL aL facLor cosL ( nn
lC
) lL ls Lhe facLor lncome accordlng
Lo Lhe resldenLs of a counLry lL ls Lhe sum LoLal of domesLlc facLor lncome and
noL facLor lncome earned from abroad
9) naLlonal lsposable lncome lL ls deflned as Lhe sum LoLal of naLlonal lncome
aL markeL prlce and Lhe neL currenL Lransfers recelved from resL of Lhe world
NDI N
M
+ Net current transfer rece|ved from rest of the wor|d
NND NN
M
+ Net current transfers from rece|ved from rest of the wor|d
10) rlvaLe lncome lL ls Lhe LoLal facLor lncome (lncludlng reLalned proflLs of Lhe
corporaLlons) from all sources and currenL Lransfers from Lhe governmenL and Lhe
resL of Lhe world accrulng Lo Lhe prlvaLe secLor
r|vate sector Nat|ona| |ncome |ncome from property and entrepreneursh|p
accru|ng to the government commerc|a| enterpr|ses and adm|n|strat|ve
departments sav|ngs of the nondepartmenta| enterpr|ses of the government
+ |nterest on nat|ona| debt + net current transfers from the government + net
current transfers from abroad
ersonal lncome lL ls Lhe lncome acLually recelved by person from all sources ln
Lhe form of facLor lncomes and currenL Lransfers paymenLs durlng a year
ersona| |ncome r|vate |ncome Und|str|buted prof|ts corporate prof|ts tax
keta|ned earn|ngs of fore|gn compan|es
er caplLa lncome lL ls average lncome of Lhe normal resldenLs of Lhe counLry ln
a parLlcular year
er caplLa lncome naLlonal lncome
opulaLlon


CAlCulATl0t 0F tATl0tAl ltC0HF.-
vAluF A00F0 HFTH00. -
lL measures Lhe naLlonal lncome as Lhe sum LoLal of neL flnal ouLpuL produced or
neL value added by all Lhe produclng unlLs ln an economy durlng a year 1here are
followlng sLeps ln calculaLlon of naLlonal lncome by value added meLhod
Step 1
ClasslflcaLlon of roducLlon unlLs rlmary Secondary and 1erLlary SecLor
Step 2
LsLlmaLlon of Cross value Added by each enLerprlse
Cross value Added (CvA) CuLpuL/Sales lnLermedlaLe CosL + Change ln SLock
Step 3
LsLlmaLlon of neL value Added by each enLerprlse
neL value Added (nvA) CuLpuL/Sales lnLermedlaLe CosL + Change ln SLock
epreclaLlon
Step 4
LsLlmaLlng neL omesLlc roducL (n
M
)
nvA of all secLors collecLlvely would glve n
M
Step S
LsLlmaLlng neL lacLor lncome from Abroad
lL ls added Lo Lhe neL domesLlc producL aL facLor cosL Lo arrlve aL naLlonal
lncome
naLlonal lncome nvA
lC
of rlmary + Secondary + 1erLlary SecLor + nllA
PRFCAuTl0tS.-
1 value of goods produced for self consumpLlon should be lncluded
2 Cwn accounL producLlon of flxed asseL should be lncluded
3 lmpuLed renL of owner occupled houses should be lncluded
4 Servlces of housewlves wlll noL be lncluded
3 Sale and purchase of exlsLlng commodlLles or second hand goods and
servlces are noL lncluded buL any commlsslon on Lhelr sale and purchase ls
lncluded
6 Sale and purchase of bonds and shares are noL lncluded buL any
commlsslon on Lhelr sale and purchase ls lncluded












ltC0HF HFTH00. -
lL measures naLlonal lncome aL Lhe phase of facLor paymenLs made Lo prlmary
facLor Lhe use of Lhelr facLor servlces under Lhls meLhod naLlonal lncome ls
calculaLed by addlng of all Lhe lncomes generaLed ln Lhe cause of produclng Lhe
naLlonal producL lL lnvolves Lhe followlng sLeps
Step 1
ldenLlflcaLlon and classlflcaLlon of produclng enLerprlses whlch employ facLor
servlce
Step 2
Crouplng of facLor lncome under dlfferenL caLegorles vlz land labour caplLal
and enLerprlse
I Compensat|on of Lmp|oyees (CCL) Wages and Salarles 8onus Commlsslon
+ConLrlbuLlon of Lmployers Lo Soclal SecurlLy Schemes
+Allowances excepL Lravelllng allowance
+ Subsldlsed food
+Medlcal faclllLles
+lree accommodaLlon
Note Not |nc|uded |n CCL
1 CompensaLlon pald Lo ln[ured worker
2 Salarles and wages of Armed ersonnel
3 lnLeresL free loan
4 1ravelllng Allowance

II Cperat|ng Surp|us (CS)
ls Lhe lncome pald for Lhe ownershlp and conLrol of caplLal
lncludes 8enL 8oyalLles lvldends and undlsLrlbuLed roflLs
III M|xed Income (MI)
Mlxed lncome ls composed of labour lncome and caplLal lncome of Lhose
people who provlde boLh labour and caplLal servlces ln Lhe producLlon
process
Step 3 omesLlc facLor lncome ls esLlmaLed by addlng
ND
IC
Compensat|on of emp|oyees + Cperat|ng surp|us + M|xed |ncome
Step 4
LsLlmaLlng neL lacLor lncome from Abroad
lL ls added Lo omesLlc facLor lncome Lo arrlve aL naLlonal lncome
Nat|ona| Income (NN
IC
) CCL + CS + MI + NIIA

PRFCAuTl0tS. -
1 value of goods produced for self consumpLlon should be lncluded
2 lmpuLed 8enL of owner occupled houses should be lncluded
3 lmpuLed value of servlces provlded by Lhe owners of producLlon unlLs
should be lncluded
4 1ransfer paymenLs are not lncluded
3 lllegal lncomes are not lncluded
6 Sale and purchase of second hand goods shares and bonds ls not lncluded
buL commlsslon Lhere of ls lncluded
FXPFt0lTuR HFTH00. -
lL measures naLlonal lncome by esLlmaLlng
expendlLure on flnal producLs le Lhose producLs whlch are purchased for
consumpLlon and lnvesLmenL lL lnvolves Lhe followlng sLeps
Step 1
ldenLlflcaLlon of economlc unlLs whlch lncur expendlLure on flnal producLs and
Lhelr dlvlslon lnLo four groups
1 Pouseholds
2 8uslness secLor
3 CovernmenL secLor
4 8esL of Lhe world
Step 2
llnal expendlLure ls dlvlded lnLo four caLegorles
1 ConsumpLlon LxpendlLure
2 lnvesLmenLs LxpendlLure
3 CovernmenL LxpendlLure
4 neL LxporLs
Step 3
MeasuremenL of ComponenLs of flnal expendlLure
1 LsLlmaLlon of rlvaLe flnal consumpLlon expendlLure
2 LsLlmaLlon of governmenL expendlLure CurrenL and CaplLal expendlLure
3 LsLlmaLlon of neL exporLs

Step 4
LsLlmaLe LoLal flnal expendlLure whlch glves n
M
8y deducLlng neL
lndlrecL Laxes we geL n
lC




Step S
Add nllA Lo n
lC
Lo flnd n
lC
or naLlonal lncome
naLlonal lncome (nn
lC
) lCL + ClCL + CCl + nL
lCL rlvaLe flnal consumpLlon expendlLure
ClCL CovL flnal consumpLlon expendlLure
CCl Cross omesLlc CaplLal formaLlon
nL neL LxporLs
recaut|ons
1 Coods meanL for selfconsumpLlon ls lncluded
2 lmpuLed value of owner occupled houses ls lncluded
3 LxpendlLure on lnLermedlaLe producLs ls noL lncluded
4 Lxpanses on second hand goods noL lncluded
3 Lxpanses on flnanclal averLs llke shares and bonds ls noL lncluded
6 1ransfer paymenLs of governmenL ls noL lncluded




0lFFCulTlFS lt CAlCulATlt6 tATl0tAl ltC0HF

1) 1he lnformal/underground economy ls much larger ln developlng naLlons
maklng esLlmaLes of C/Cn dlfflculL

2) CfLen daLa collecLed from developlng naLlons are unrellable or lncompleLe
maklng any esLlmaLe of naLlonal lncome blased

3) eveloplng naLlons also generally have large nonmoneLary economles goods
are exchanged wlLh means oLher Lhan cash Lhese LransacLlons are noL recorded
ln C

4) C does noL accounL for nonmarkeL LransacLlons whlch Lend Lo represenL a
greaL deal of economlc acLlvlLy ln developlng naLlons










C0tCluSl0t