Introduction to National Income Models of National Income Determination - Economic Indicators Technology and Employment - Issues and Challenges;

Business and Government.

The well-known writer, Paul Studenski, writes: "National income is both a flow of goods and services and a flow of money incomes. It is therefore called national product as often as national income".

Gross National Product(GNP) Gross Domestic Product(GDP) Net National Product(NNP) National Income(NI) Personal Income(PI) Disposable Income(DI)

Total market value of all goods and services produced in a country in a particular year, and the income which is earned by its citizens, who are located abroad minus the income of non residents located within that country. GNP is a measure of the value of goods and services, which the nationals or residents of the country produce regardless of where they are located. Total Income of a nation as earned by the citizens of a nation GNP = GDP + incoming money from abroad Outgoing money to abroad

It includes the value of goods produced such as houses and food grains and the value of services such as broker's services and economist's lectures

Total market value of all the final goods and services produced by all the enterprises(both the residents and non residents) within the domestic territory of a country in a particular year GDP=C+I+G+NX Nominal Vs. Real GDP GDP Deflator(Nominal GDP/Real GDP)*100

Farmer produced Wheat and sold 100 kg of it @ 2000 Rs. (Original value) Flour mill, purchased it, grinded it and sold the flour to baker @ 2500 Rs. Baker made breads, cookies and biscuits and sold the total production @3500 Rs to its final customers.

Year
2005 2006 2007

Quantity of Banana
100 150 200

Price of Banana
2 3 4

Quantity of Apple
50 70 90

Price of Apple
10 15 20

Answers: Nominal GDP: 2005=700 2006=1500 2007=2600 Real GDP: 2005=700 2006=1000 2007=1300

GNP=GDP + Factors payment from AbroadFactor payments to abroad

GDP

GNP

Definition:

An estimated value of the total worth of a countrys production and services, calculated over the course on one year

GDP (+) total capital gains from overseas investment (-) income earned by foreign nationals domestically

Stands for:

Gross Domestic Product

Gross National Product

Formula for Calculation:

GDP = consumption + investment + (government spending) + (exports imports) Total value of products & Services produced within the territorial boundary of a country

GNP = GDP + NR (Net income from assets abroad (Net Income Receipts))

Layman Usage:

Total value of Goods and Services produced by all nationals of a country (whether within or outside the country)

Application (Context in which these terms are used):

To see the strength of a countrys local economy

To see how the nationals of a country are doing economically

NNP(at market price)=GNP- Depriciation

NNP at factor cost National Income= NNP at Market priceIndirect Taxes+Subsidies NI=NNP at Market price-Net Indirect Taxes

Sum of all incomes actually received by all individuals or households during a given year. PI=NI-(corporate profits+social security contributions+Net Interest)+(Dividends+Transfers from Govt. to Individuals+personal interest income)

Amount which is actually available to the households DI=PI-Personal Taxes Either consumed or saved DI=Consumption+savings

Aggregate Demand and Aggregate Supply Approach Saving-Investment Approach

Aggregate Demand

Y=C+S

C+I
E C

I Ca 45 Income

Consumption Function(C)=Ca + bY

Where Ca = Intercept of consumption function on Y axis b= Slope of the consumption function(Marginal Propensity to Consume) Y=Disposable Income

Aggregate Demand=Total Value of Output Y=C+I

Where C=Consumption I= Investment

Y=C+I ..(1) Substituting value of consumption function in equation 1 So, Y= Ca + bY+I Y-bY= Ca +I Y= 1 (Ca +I) 1-b

Planned Saving and Planned Investment

S=-Ca + sY I Income

Ca

Saving Function Y=C+S S=Y-C Substituting the consumption function in the equation
S=Y- Ca - bY S=- Ca +Y-bY S=- Ca +(1-b)Y S=- Ca +sY

Now AD=AS C+I=C+S We can write as follows I=S Substituting saving function in above equation I=- Ca +(1-b)Y Y= 1 (Ca +I) 1-b

1.

1. The equilibrium level of income 2. The equilibrium level of consumption 3. The equilibrium level of saving Answers: 1. Y=1850 2. C=1600 3. S=250

In an economy, the basic equations are as follows. The consumption function is C=120+0.80Y and Investment I=250. Find

2.

The fundamental equation in an economy are given as: Consumption as C=150+0.80Y, Investment I=200.
1. Derive saving function 2. Find equilibrium level of output Answers 1. S=-150+0.20Y 2. Equilibrium level of output=1750

1.

If in an economy C=450+0.80Y,Investment is I=540

1. Determine the equilibrium level of income and consumption 2. Derive the saving function and determine the savings at equilibrium 3. Determine the equilibrium level of income

2.

In an economy, basic equations are as follows: the consumption function is C=150+0.80Y and investment I= Rs.180 Crore. Find:
1. The equilibrium level of income 2. The equilibrium level of income when investment increases from Rs. 180 Crore to Rs. 200 Crore.

GDP per capita Life Expectancy Literacy Rates Measures of Poverty Human Development Index Purchasing Power Parity

Low Per Capita Income and Low rate of economic Growth High Proportion of people below the poverty line Low level of productive efficiency due to inadequate nutrition and malnutrition Imbalance between population size, resources and capital Problem of Unemployment Instability of output of agriculture and related sectors Imbalance in distribution and growing inequalities

1. 2. 3. 4. 5.

Government enterprises Price fixation Direct intervention Indirect intervention Control of monopolies