National Income

Definition : It is the money value of all final goods and services produced in a country during a period of one year.

Economic activities generate a large number of goods and services and make net addition to the national stock of capital

*Economic activities and non economic activities

Importance of NI

It is the most important macro economic variable and determinant of the business level and economic status of a country . The level of national income determines the level of aggregate demand for goods and services . It is considered as an indispensable variable in economic forecasting

III.The Circular-Flow Diagram methods of estimating GDP

Revenue

Goods & Services sold

Market for Goods and Services

Spending Goods & Services bought

Firms

Households

Inputs for production

Wages, rent, and profit

Market for Factors of Production

Labor, land, and capital

Income

Measures of National Income

GDP: Gross Domestic Product GNP :Gross National Product NNP :Net National Product

NDP :Net Domestic Product

Gross domestic product (GDP) is the total market value of final output produced within a nations borders in a given time period plus the income earned locally by the foreigners minus income earned abroad by the nationals

GNP

Gross National Product (GNP) It is value of all final goods and services produced during a specific period in a country, Plus income earned abroad by the nationals minus income earned locally by the foreigners

GDP Verses GNP

Gross National Product (GNP) refers to output produced by the citizens-owned factors regardless of location. GDP refers to output produced within the borders of the nation borders. GDP per capita is total GDP divided by total populationaverage GDP. GDP per capita is commonly used as a measure of a countrys standard of living

Net National Product

NNP = GNP Depreciation It is the measure of net output available for consumption by the society Depreciation is the consumption of capital in the production process the wearing out of plant and equipment

Net domestic product is the amount of output we could consume without reducing our stock of capital.

NDP = GDP depreciation

Personal income (PI) is the income received by households before payment of personal taxes.

Personal income = National income (corporate taxes + retained earnings + Social Security taxes)
+ (transfer payments + net interest)

Disposable income (DI) is the after-tax income of households. It is personal income less personal taxes

Disposable income = personal income personal taxes

Disposable Personal Income

Disposable personal income is the income that household and noncorporate businesses have left after satisfying all their obligations to the government. It equals personal income minus personal taxes and certain nontax payments.

Per capita Income

Per capita Income =

National Income ------------------------Population

Real versus Nominal GDP

Nominal GDP values the production of goods and services at current prices. Real GDP values the production of goods and services at constant prices.

GDP Deflator

The GDP deflator is calculated as follows:

Nominal GDP GDP deflator = 100 Real GDP

Real and Nominal Income

Real Income: Nominal Income It is the value at the current prices Nominal Income:

It is value at constant prices (Prices prevailing in the chosen base year)