What Is National Income? – Indian Economy – Free PDF Download

Definitions

• National Income of any country is the complete value of the goods and services produced during its financial year
• Valued in terms of money
• National Income considers only the factor incomes
• Economic Territory: Geographical territory administered by a government within which persons, goods and capital circulate freely
• GDP calculation: All the Residents
• GNP Calculation: All the citizens
• Production Taxes: Taxes paid on land, labour, assets such as Land revenue, stamp duty, Registration fee, Professional tax
• Product Taxes: Taxes paid on per unit of product such as GST, Excise Duty, Customs duty
• Factor Cost: Cost of factors of Production such as land, Labour and Capital
• Basic Price: Factor Cost + Production Taxes- Production Subsidies
• Market Price: Basic Price+ Product Taxes- Product Subsidies
• GDP at market price: Money value of all goods and services produced within the domestic domain with the available resources during a year
• Gross National Product (GNP): Market value of final goods and services produced in a year by the residents of the country within the domestic territory as well as abroad
• Net National Product (NNP): Market value of net output of final goods and services produced by an economy during a year and net factor income from abroad
• National Income (NI): Is also known as land, labour, capital and organisational ability

Methods to calculate National Income

1.Income Method

• Net National Income = Compensation of Employees+ Operating surplus mixed (w +R +P +I) + Net income + Net factor income from abroad

2.Production Method

• GDP at Market Price = GDP at basic Price + Product Taxes – Product Subsidies
• NATIONAL INCOME = G.N.P – COST OF CAPITAL – DEPRECIATION – INDIRECT TAXES

3.Expenditure Method

• GDP = PFCE+ GFCE + GCF + (XM)
• National Income=National Product=National Expenditure
• Nominal GDP: GDP at the current market prices
• GDP is calculated as per the market prices for the year for which the GDP is calculated
• Real GDP: GDP at base year prices
• GDP is calculated as per the market prices in the base year
• Real GDP negates the inflation in goods and services
• In case of high rate of inflation: Nominal GDP would be quite higher than the real GDP
• In case of deflation: Real GDP would be higher than the nominal GDP
• GNP = GDP + Income earned by Indians outside India – Income earned by Foreigners within India
• GNP = GDP + Net Factor Income from abroad (NFIA)

CHANGES IN THE GDP ESTIMATION

• Change in the base year from 2004-05 to 2011-12
• Base years are revised at a frequency of 7-10 years
• Base years are revised by taking into account the changing economic landscape of the country
• Change in the GDP estimation from the GDP at Factor Cost to GDP at Market Prices
• Change in the database for capturing economic activity from RBI’s database to the MCA-21 database of the Ministry of Corporate Affairs

MCQs

Q) Which of the following measures will spur economic growth? 1.Transparent and hassle-free land acquiring.

1. Availability of Skilled labour.
2. The decrease in effective demand.

Select the correct answer using the code given below

1. 1 and 2 only
2. 2 only
3. 2 and 3 only
4. 1, 2 and 3

Answer: 1

Q) Consider the following statements:

1. Real GDP measures an economy’s total goods and services in a given year, taking into account changes in price levels.
2. Real GDP can never be more than the nominal GDP. Which of the statements given above is/are correct?

1. 1 only
2. 2 only
3. Both 1 and 2
4. Neither 1 nor 2

Answer: 1

Q) Consider the following statements regarding India’s GDP data:

1. The National Statistical Office (NSO) is mandated to prepare national accounts as well as publish biannualestimates of the national product.
2. India’s economy for the first time in the last decade saw a negative quarterly growth rate in (April-June) Q1 of 2020-21.

Which of the statements given above is/are correct?

1. 1 only
2. 2 only
3. Both 1 and 2
4. Neither 1 nor 2

Answer: 2

Q) The net value of GDP after deducting depreciation from GDP is

1. Net national product
2. Net domestic product
3. Gross national product
4. Disposable income

Answer: 2

Q) Consider the following statements: 1.GNP = GDP + Net factor income from abroad

1. Net National Product at factor cost is “National Income”
2. National Disposable Income=Net National product at market prices + other current transfers from the rest of the world.

Which of the statements given above is/are correct?

1. 1 and 2 only
2. 2 and 3only
3. 1, 2 and 3
4. 1 and 3 only

Answer: 3

Q) The value of NNP at the production point is called

1. NNP at factor cost
2. NNP at market price
3. GNP at market price
4. GNP at factor cost

Answer: 1

Q) Consider the following statements

1. While calculating GNP, income generated by foreigners in a country is taken into consideration
2. While calculating GNP, income generated by nationals of a country outside the country is taken into account Which of the following statements is/are not correct?

1. 1 only
2. 2 only
3. Both 1 and 2
4. Neither 1 nor 2

Answer: 1

Q) When depreciation is deducted from GNP, the net value is

1. Net national product
2. Net domestic product
3. Gross national product
4. Disposable income

Answer: 1

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