National Income Essay

August 13, 2017 Accounting

The entire income of a state is called national income. The aggregrate economic public presentation of the whole economic system is measured by the national income informations. In fact. national income informations provide a drumhead statement of a country’s aggregative economic activity. In existent term. national income is the flow of goods and services produced in an economic system in a peculiar period—a twelvemonth. Moden economic system is a money economic system. Thus. national income is expressed in money footings. A National sample study has. thefore. defined national income as: ”Money steps of the net sums of all trade goods and services accruing to the dwellers of a community during a specific period”

The most of import point about National Income is that it is ever expressed with mention to a clip interval. It is nonmeaningful to talk of the national income of an person without adverting the period over which it is earned. state per hebdomad. per month or per twelvemonth. Like many other footings in common usage. the concept “national income “ has assorted cannotations. For inistance. national income is diversely described. Sometimes. it is known as “national income” . or “natiomal product” . or “ national dividend” . As a affair of fact. all these footings mean one and the same thing. In national income accounting. therefore the construct of national income has been interpreted in three ways. as:

1 ) National Product.
2 ) National Dividend.
3 ) National outgo.

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National PRODUCT:
It consist of all the goods and services producedby the trade good and exchanged for money during a twelvemonth. It does non include goods and services which are non paid for. such as avocations. house married woman. services. charitable work. etc.

National Income:

It consist of all the income. in hard currency and sort. accruing to the factors of production in the class of bring forthing the national merchandise. It represents the sum of income flow which will precisely be the value of the national merchandise turned out by the community during the twelvemonth.

National Outgo:

This represents the entire disbursement or spending of the community on the goods and services produced during a twelvemonth. Since income is the beginning of outgo. national outgo constitutes the disposal of national income. which is obviously equal to it in value or in other words. National Expenditure equals National Income.

INDEED. ONE MAN’S INCOME IS ANOTHER MAN’S EXPENDITURE.

When a individual buys some things. it is expenditure. but every outgo is the income of a some other individual. and these procedure goes on and on and it uninterrupted. Briefly. therefore. the individuality of the three factors of the flow of national income may be expressed as follows:

National INCOME = NATIONAL PRODUCT = NATIONAL EXPENDITURE

When we analyze. the above three constructs. we find national income is nil but “the entire flow of wealth produced. distributed and consumed” .

There are. therefore. three alternate definition of national income. THE First DEFINATION is that it is the money value of goods and services produced by agent of production during the cource of twelvemonth. we might name this “total production approach” THE SECOND DEFINATION is that it is the amount of incomes of agent of production. net incomes of public endeavor. income from authorities companies. This we might depict as “income approach”

THE THIRD DEFINATION is that national income is the amount of entire outgo of agents of production. We might name it “total outgo approach”

CONCEPT ASSOCIATED WITH NATIONAL INCOME

GROSS NATIONAL PRODUCT ( GNP )

In ciphering national income. we add up all the goods and services produced in a state. Such a entire represents the gross value of concluding merchandises turned out by the whole economic system in a twelvemonth. which is technically called “ gross national prouct” . The word gross indicates the inclusion of the proviso for the consumotion of capital assets. i. e. deperication or replacing allowances. GNP. therefore. may be defined as the sum market value of all concluding goods and services produced during a given twelvemonth. In an unfastened economic system GNP may be obtained by adding up:

( 1 ) The value of all ingestion goods which are presently produced. ( 2 ) The valve of all capital goods produced which is defined as Gross investing. in the existent sense. here implies the addition in stock lists plus gross merchandise of edifice and equipments. It therefore include the proviso for the ingestion of capital assets. i. e. deperication or replacing allowances.

( 3 ) The values of authorities services which is measured in footings of authorities outgo on assorted goods and services for rendering certain services to the benefit of full community. ( 4 ) The value of net merchandises. viz. . the difference between the entire export and entire import of the state. this value may be positive or negative. ( 5 ) The net sum earned abroad. This represent the difference between the income received by the subjects from abroad on their forign investing. minus the income paid by them abroad on the foreigner’s investing.

GNP is the basic societal accounting step of the toyal end product. it represent the concluding merchandise. ready for ingestion. valued at the current market monetary values.

GROSS DOMESTIC PRODUCT ( GDP ) :

When we take the sum sum of values of end product of goods and services in the state. without adding the factor incomes received from abroad. the figure so obtained is called gross domestic merchandise. GDP at changeless monetary values and current pricies. :

When the prevailing pricies or current monetary values in a twelvemonth are used for mensurating GDP. . is known as GDP at current monetary values. . nevertheless when we use the monetary value of base twelvemonth for mensurating the valley of GDP we called At GDP at changeless monetary value. GDP at factor cost and GDP at Market monetary value:

GDP at factor cost is arrived at by adding the domestic the domestic factor incomes and premise of fixed capital. Like wise. the GDP evaluated at the monetary value prevailing in the market is called GDP at market monetary value. Conceptually. GDP at factor cost and GDP at market monetary value should be the same. BUT since goods are capable to indirect revenue enhancements. the GDP at market monetary value will be more so the GDP at factor cost. Similarly the value of goods may include the subsidy provided by the govermentto the manufacturer. This reducies the monetary value of the trade good in the market and therefore the value of GDP. Therefore. in order to get at GDP factor cost. we have to subtract indirect revenue enhancements and add subsdies to GDP at market monetary value. GDP at factor cost=GDP at market monetary value + ( S—T ) .

Where. S=Government subsidies & A ; T= indirect revenue enhancements.

Net national merchandise ( NNP ) :
It refers to the value of the net end product of the economic system during one twelvemonth. NNP is obtained by subtracting the value of depression or replacing allowance of the capital assets from the GNP. To set it symbolically: NNP=GNP-D. where D=deperication allowances.

Other releated construct & A ; relationship

I. National income ( NI ) :
Personal income is the entire income received by persons in the community. peresonal income is the aggregrate earned & A ; unearned income.

Therefore. personal income PI=NI–undistributed net incomes.

II. Disposable Personal income ( DPI ) :
Disposable personal income is the amount of the ingestion & A ; economy of persons DPI=C+S
Therefore disposable income instead than National income is the determiner of ingestion. because the ingestion of a individual depends on his return hapme wage.

III. Personal economy ( PI ) :
Personal salvaging refers to the difference between disposable income & A ; personal ingestion outgo.

IV. Per capita income ( PCI ) :
Per capita income refers to the mean income of the citizens of a state in a given twelvemonth. it besides indicates the measuring of income of current monetary values and at a changeless monetary values and is arrived by spliting the national income of a state by its population.

Per capita income= national income of a state
Entire population

Method of gauging natural income.
We have three methods of gauging natural income.
I. The nose count of merchandise.
two. The nose count of income method & A ; .
three. The outgo method.



1 ] The nose count of merchandise method or end product method.

This method is besides known as value added merchandise method or end product method. under this method the economic system of a state is divided into three major sector. a ) Primary sector: which include agribusiness. carnal husbandary. piscary. forestry. etc. B ) Secondary sector: which include consumer goods unit and capital goods units. degree Celsius ) Tertiary sector or service sector: which include service like trade. conveyance and commercialism.

This method consist of a three phase.

1. We estimate the gross value of domestic merchandise in the assorted sector of the economic system. 2. Then. we determine the cost of stuffs used and of services rendered to these sector by factor of production and besides the one-year value of deprication. 3. We so subtract these cost and deperication from the gross value of a production.

And in conclusion. to the net domestic merchandise we add net income from abroad to acquire net national merchandise at factor costwhich is called national income.

2 ] nose count of income method:

Under the income method. national income is estimated by summing up to the income of all person of a state. consequently national income is measured by adding up rent of land. rewards. intrest and wage of a worker – intrest on capital. net income on enterpriners. earning of ego employed individual dividend to portion holder etc. Income method. hence. attacks national income from the distribution side. this method. as such seeks to mensurate national income at the phase of distribution and appears as income paid and / or recived by the person of the state.

3 ] the outgo or spending method:

National income on the outgo is equal to the value of ingestion plus investing. In this method. we have to: 1. Estimate private & A ; public outgo on consumer goods and services. 2. Add the value of investing in fixed capital & A ; stocks. eith due consideration for net positive or negative stock lists. & A ; 3. Add the value of export & A ; deduct the value of import. This method is non every bit popular as old 1s.

The Bowley Robestorn commission has suggested the acceptance of the nose count of merchandises method for ajor sector of India. & A ; the nose count of income method for some minor sectors. while the National income commission relied chiefly upon the nose count of Income method. However. none of the above method is perfect. hence. an incorporate calculation of them will give a wider persective of the estimation.

Troubles in national income estimations.

While gauging national income statistication & A ; economic experts normally encounter the folling sets of troubles: A. Conceptual or methodological troubles.

B. Troubles in gauging national income in a underdeveloped state.

A. Conceptual or methodological troubles:
a ) Imputed values:
The ego owned and self supplied goods pose a job. they are given imputed values for their inclusion in national income.

B ) Different patterns:
Different state resort different pattern in ciphering national income. This makes international comparsion of national and per capita income less important.

degree Celsius ) Problem of service non marketed:
Normally goods or service which are non marketed do non organize a portion of national income. . eg. . service rendered by house married woman are non included as they are non sold in the market for money rewards but the outgo or justness and defense mechanism services are included.

vitamin D ) Problem of dual numeration:
In order to get the better of the job of dual numbering merely the value of concluding goods in taken into history while calculating national income.

vitamin E ) Harmful side consequence:
National income histories do non do any accommodation for the negative and harmful side consequence production. pollution and attendant wellness jeopardy overexploitation of natural resources taking to future decrease of production are the best illustration of negative side consequence.

degree Fahrenheit ) Iliegal activities:
Many activities are non reported as they are illegal and belowground. E. g. revenue enhancement equivocation. smuggling. debasement. They are hence. non included in national income statistics.

g ) Disregard of human strains and leisure:
National income accounting does non take history of import thing like homo
leisure. human cost in the signifier of occupation emphasis and strain etc.

B. Troubles in gauging national income in developing states:

The developing states of Asia and Africa facies many troubles in gauging national income. because their economic. societal. and administrative construction are still in a backward province.

a. Being of non-monetised sector:
The troubles arise due to the being of non-monetised dealing. Quite the big sum of end product in these states does non rich to the market at all ; either yhey are consumed themselves or they are exchanged against other goods in a small town. Since this portion of the agribusiness end product can non be quantified in money footings.

b. Illiteracy:
A bulk of little husbandmans in a underdevelopment state are illiterate. so they are unable to give the right information about the measure or value of their end product. The statisticians can merely think their income or end product in ciphering GNP.

c. More than one business:
Because of economic underdevelopment. business specialisation is still incompleate. Many individuals undertake moe than one economic activity to do the both manus meet. Hence the computation of national income become more hard.

d. Lack of equal statistical informations:
The stastical informations in a developing states are non merely unequal. but theu are besides inreliable. Even the statistical information sing the organized sector is besides undependable. There is in accurate information available sing ingestion. investing outgo sing economy of either rural or urban population.

e. Limation of sample method:
The national income is estimated on the BASIC of informations of certain selected sample territories. But in a underdeveloped state like India economic status in the different provinces are different and even in different territory of the province are besides different.

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