PGP GROUP-6

Adarsha Chaubey-110066
Anurag kumar- 110074
Jyotsna Prakash- 110082
Nitish Kumar Sinha-110090
Ravi Kumar Mahto- 110098
Shruti- 110106
Tarun Kumar- 110114
National Income

 National Income is value of all final goods & services produced in a country within a
particular period of year or time.
 It include all the economy activity or aggregate value of all economic activities.
 It is aggregate of all factor payment.
 Factor for payment= wage + Rent + Interest + Profit
 National Income accounting help to understand health of country & to make budget.
Different Name Of National Income

GDP- Gross Domestic

Product
GNP- Gross National
Product
NNP- Net National
Product

PI – Personal Income

DI- Disposable Income

 GDP,GNP,NNP,PI,DI
 GDP- Gross Domestic Product (GDP) is a monetary measure of the market value of all the
final goods and services produced in a period of time, often annually or quarterly.

Real

• Goods and services measured at constant price.

Nominal

• Goods and services measured at current price.

 Cont.….
 GNP- GNP is the total measure of the flow of goods and services at market value resulting from current
production during a year in a country, including net income from abroad.
 NNP- NNP includes the value of total output of consumption goods and investment goods. But the process
of production uses up a certain amount of fixed capital. Some fixed equipment wears out, its other
components are damaged or destroyed, and still others are rendered obsolete through technological changes.
 All this process is termed depreciation or capital consumption allowance. In order to arrive at NNP, we
deduct depreciation from GNP. The word ‘net’ refers to the exclusion of that part of total output which
represents depreciation. So NNP = GNP—Depreciation.
 PI- Personal income is the total income received by the individuals of a country from all sources before
payment of direct taxes in one year. Personal income is derived from national income by deducting
undistributed corporate profits, profit taxes, and employees’ contributions to social security schemes. These
three components are excluded from national income because they do reach individuals.
 DI- Disposable income or personal disposable income means the actual income which can be spent on
consumption by individuals and families. The whole of the personal income cannot be spent on
consumption, because it is the income that accrues before direct taxes have actually been paid.
Therefore, in order to obtain disposable income, direct taxes are deducted from personal income.
 Definitions
 GDP Deflector- GDP deflator is an index of price changes of goods and services included in GDP. It is a
price index which is calculated by dividing the nominal GDP in a given year by the real GDP for the same
year and multiplying it by 100.
 Base Year- The starting point for the construction of an index number series.The base period or base year
refers to the year in which an index number series begins to be calculated. This will invariably have a
starting value of 100. As of now for calculation for GDP base year is 2011-12 but Govt. is looking to change
it 2017-18.
 Depreciation- Every corporation makes allowance for expenditure on wearing out and depreciation of
machines, plants and other capital equipment. Since this sum also is not a part of the income received by the
factors of production, it is, therefore, also included in the GNP.
 NFIA- The net factor income from abroad(NFIA) is the difference between a nation’s gross national product
(GNP) and gross domestic product (GDP). Net factor income from abroad(NFIA) is the difference between
the aggregate amount that a country’s citizens and companies earn abroad, and the aggregate amount that
foreign citizens and overseas companies earn in that country. In mathematical terms, NFIA = GNP - GDP.
 Calculations
 Real GDP= Nominal GDP/GDP Deflator
 GNP= GDP-NFIA
 NNP= GNP-Depreciation
 NDP-NFIA=NNP
 NNP=GDP-Depreciation-NFIA
 NNP market price ≤ NNP factor cost
 FC(factor cost) = MP – Tax + Subsidy
 NNP FC = GDP MP – NFIA – Dep – Net Indirect tax (NIT)
 NNP FC = GDP mp – NFIA – Dep + Tax – subsidy
 Net indirect Tax (NIT) =Tax – Subsidy
 NNP FC= PI – Transfer Payment – Corporate Earning + SRP(surplus Revenue of public interprises)
+ PRE (Earning & Rent by public office)
Cont.…
 PI - NNP fc + Transfer Payment – Corporate Earning
 Disposable Income = National Income – Tax (DI = NI – Tax)
 Factor cost is the cost incurred in hiring factors of production.
 Cost of hiring these factors are- Rent for land, Wages or salaries for labour, Interest for capital,
and profits for entrepreneur
 These rewards for factors of production when summed up, results in Factor Cost. This is the cost
of producing a particular commodity.
 After adjusting indirect taxes and subsidies in factor cost, we arrive at Market Price.
 MP= FC+ NIT
 NIT= Indirect taxes- Subsidies.
Difficulty In Measuring National Income
 Difference between Economic activity & Non Economic activity.

Market

Economic
Activity

Non
market
Difficulty In Measuring National Income

Difference between Consumer Difference between intermediate

Good and Producer Good Good and Final Good

National income
accounting
problem

Problem Of Transfer Payment

Problem Of Double Counting Identification(Scholorship,Social
Security)
 Oil Price and its effect on National Income
 Y=C+ I + G + (X- M)
 Y= National Income , C= consumption , I= Investment G= Govt. Expenditure and Budget
 Increase and decrease of Oil price effects Current account deficit and Fiscal deficit.
 In the Union Budget 2018-19, the government had budgeted for petroleum subsidy of Rs25,000
crore, similar to that in FY18.
 Recently, government reduced tax on oil by Rs 2.5 .
 The government was expected to take a hit of Rs 10,500 crore due to the excise duty cut in the
current financial year, which would account for 0.05 per cent of the fiscal deficit.
 This Reduced price increase burden on Govt. Expenditure and Budget and it also increase
Consumption of oil.
 To ensure lower price of fuel and provide stability government was giving subsidy to oil companies, that was
one of the major reason for widening fiscal deficit, however, when there was the lower crude price
government not only discontinued subsidies and deregulated the oil sector also increased excise duty of fuel
to narrow the fiscal deficit.
 But as of now govt. decreased excise duty it will certainly help to curtail inflation due to high price rise of
oil but on other hand it will increase on fiscal deficit. Which will hinder economic growth and decreases
GDP.
Wider
FISCAL
DEFICIT

OIL
Tax
cut
Lower Impact
INFLATION on
Rate
GDP
 Refrences
 https://www.thehindubusinessline.com/economy/govt-to-change-base-
year-for-gdp-iip-to-2017-18/article22760928.ece
 http://www.isec.ac.in/WP%20367%20-
%20Anantha%20Ramu%20and%20K%20Gayithri%20-%20Final.pdf