NATIONAL INCOME –AND RELATED AGGREGATES 1

Ø  NATIONAL INCOME –AND RELATED AGGREGATES 1
SHASHI AGGARWAL ECONOMICS AND LAW CLASSES

Ø  CHAPTER 2

Ø  PRINCIPLES OF ECONOMICS

Ø  MEANING OF NATIONAL INCOME

• REFERS TO AGGREGATE INCOME EARNED BY THE NORMAL RESIDENTS OF A NATION DURING A GIVEN PERIOD AS A RESULT OF THEIR PRODUCTIVE SERVICES. INCOME IS FLOW BECAUSE IT IS CONCERNED WITH A GIVEN PERIOD OF TIME AND IT IS ONE YEAR
• NATIONAL INCOME AND NATIONAL PRODUCT ARE TWO DIFFERENT MEASURES OF THE LEVEL OF ECONOMIC ACTIVITY OF AN ECONOMY. NATIONAL INCOME MEASURES FACTOR INCOMES THAT ARE EARNED BY OWNERS OF FACTORS OF PRODUCTION.
• NATIONAL INCOME IS SUM OF FACTOR’S INCOMES WAGES,INTEREST,RENT AND PROFIT RECEIVED BY THE OWNERS OF FACTORS OF PRODUCTION LABOUR,CAPITAL,LAND AND ENTREPRENEURSHIP OF A NATION DURING ONE YEAR.
• NATIONAL PRODUCT MEASURES MARKET VALUE OF THE GOODS AND SERVICES PRODUCED ON ACCOUNT OF THE USE OF FACTORS SERVICES RENDERED BY THE OWNERS OF FACTORS OF PRODUCTION.
• NATIONAL PRODUCT IS THE TOTAL MARKET VALUE OF THE FINAL GOODS AND SERVICES CURRENTLY PRODUCED BY A NATION IN ONE YEAR.

  

• CONCEPTS RELATED TO NATIONAL INCOME

Ø  DOMESTIC TERRITOY OF A COUNTRY:-

1. POLITICAL BOUNDARIES INCLUDING SEA SHORE OF A COUNTRY
2. SHIPS AND AEROPLANES OWNED BY THE RESIDENTS OF A COUNTRY AND OPERATING BETWEEN TWO OR MORE COUNTRIES
3. FISHING BOATS OF A COUNTRY’S FISHERMEN AND SHIPS ENGAGED IN THE EXPLORATION OF OIL AND NATURAL GAS IN THE INTERNATIONAL WATERS
4. EMBASSIES AND MILITARY BASES IN THE OTHER COUNTRIES

• NORMAL RESIDENTS OF A COUNTRY

1. A NORMAL RESIDENT IS SAID TO BE PERSON WHO ORDINARILY RESIDES IN A COUNTRY AND WHOSE CENTER OF INTEREST LIES IN THAT COUNTRY.TO BECOME   A NORMAL RESIDENT A PERSON MUST BE RESIDENT IN A COUNTRY FOR MORE THAN A YEAR.
2. NORMAL RESIDENT DEFINITION ALSO APPLIES TO INSTITUTIONS
3. TO BE RESIDENT IT IS NOT ESSENTIAL TO BE ITS CITIZEN
4. LOCATION OF INTERNATIONAL ORGANIZATIONS LIKE WHO AND IMF ETC DOES NOT ENABLE THEM TO BE NORMAL RESIDENTS BUT PERSONS WHO ARE EMPLOYED THERE AND LIVING IN THAT COUNTRY MORE THAN ONE YEAR ARE NORMAL RESIDENTS
5. INDIAN CITIZENS WORKING IN AMERICAN EMBASSY LOCATED IN INDIA ARE TAKEN AS NORMAL RESIDENTS
6. FOLLOWING CATEGORIES NOT INCLUDED IN NORMAL RESIDENTS

a)    FOREIGNERS LIVING IN A COUNTRY FOR A PERIOD OF LESS THAN ONE YEAR

b)    PERSONS WHO ARE WORKING ON FOREIGN SHIPS OR FOREIGN LABORER OR COMMERCIAL TRAVELERS WHOSE STAY IS LESS THAN ONE YEAR

c)    DIPLOMATS,EMPLOYEES AND MEMBERS OF DEFENCE SERVICES OF ANOTHER COUNTRY

d)    FOREIGN NATIONAL WORKING IN THE INTERNATIONAL ORGANIZATIONS LOCATED IN COUNTRY HAVING STAY LESS THAN ONE YEAR

e)    PERSON LIVING IN BORDER AREA WHO CROSS THE BORDER DAILY TO EARN THEIR LIVING

• DEPRECIATION OR CONSUMPTION OF FIXED CAPITAL

1. DURING THE COURSE OF PRODUCTION FIXED CAPITAL LIKE MACHINES SUFFERS WEAR AND TEAR IT IS KNOWN AS DEPRECIATION OR CONSUMPTION OF FIXED CAPITAL
2. NORMAL WEAR AND TEAR: MORE INTENSELY THE FIXED ASSETS ARE USED THE MORE WEAR AND TEAR IS THERE
3. FORESEEN OBSOLESCENCE: LOSS OF VALUE OF FIXED CAPITAL ASSETS DUE TO CHANGE IN THE TECHNIQUE OF PRODUCTION OR DUE TO CHANGE IN DEMAND FOR GOODS AND SERVICES
4. NORMAL RATE OF ACCIDENTAL DAMAGES:-FALL IN VALUE DUE TO DAMAGE
5. CONSUMPTION OF FIXED CAPITAL= NORMAL WEAR AND TEAR+FORESEEN OBSOLESCENCE+ACCIDENTAL DAMAGES

• GROSS PRODUCT VERSUS NET PRODUCT
• THE BASIC DIFFERENCE BETWEEN GROSS AND NET NATIONAL INCOME OR DOMESTIC PRODUCT OR INCOME IS DEPRECIATION OR CONSUMPTION OF FIXED CAPITAL
• NET PRODUCT INCOME=GROSS PRODUCT OR INCOME-DEPRECIATION
• GROSS PRODUCT OR INCOME=NET PRODUCT OR INCOME+DEPRECIATION

Ø  MARKET PRICE VERSUS FACTOR COST

1. THE BASIC DIFFERENCE BETWEEN THE CONCEPT OF MARKET PRICE AND FACTOR COST IS THE NET INDIRECT TAX
2. THE FACTOR COST INCLUDES THE PAYMENTS TO THE FACTORS OF PRODUCTION WHILE MARKET PRICE INCLUDES THE PAYMENTS TO THE FACTORS OF PRODUCTION AS WELL AS NET INDIRECT TAXES. THE NET INDIRECT TAX GOES TO THE GOVERNMENT.
3. COMPONENTS OF INDIRECT TAXES:-

a)    INDIRECT TAXES:-WHICH ARE IMPOSED BY THE GOVERNMENT. THESE INCREASE THE MARKET PRICE OF THE PRODUCT

b)    SUBSIDIES:-ARE MONETARY HELP BY THE GOVERNMENT TO THE PRODUCERS FOR ENCOURAGEMENT TO PRODUCE CERTAIN COMMODITIES AN IT ACCRUES TO THE FACTORS OF PRODUCTION AND PART OF TH INCOME GENERATED

• MARKET PRICE VERSUS FACTOR COST
• NET INDIRECT TAXES =INDIRECT TAXES-SUBSIDIES
• FACTOR COST=MARKET PRICE-INDIRECT TAX +SUBSIDIES
• MARKET PRICE =FACTOR COST+INDIRECT TAX-SUBSIDIES
• NET FACTOR INCOME FROM ABROAD
• NET FACTOR INCOME FROM ABROAD IS THE DIFFERENCE BETWEEN FACTOR INCOME EARNED  FROM ABROAD BY THE NORMAL RESIDENTS OF A COUNTRY AND INCOME PAID FOR FACTOR SERVICES RENDERED BY THE NON RESIDENTS WITH IN THE DOMESTIC TERRITORY OF THE COUNTRY.
• NET FACTOR INCOME FROM ABROAD=FACTOR INCOME FROM ABROAD BY THE NORMAL RESIDNETS-FACTOR INCOME OF NON RESIDENTS IN DOMESTIC TERRITORY
• SOCIAL SECURITY CONTRIBUTIONS

a)    REFERS TO ALL THOSE CONTRIBUTIONS MADE BY THE EMPLOYERS ON BEHALF OF THEIR EMPLOYEES IN THE FORM OF PROVIDENT FUNDS,GRATUITY,UNEMPLOYMENT,INSURANCE,SICKNESS BENEFITS

b)    THESE CONTRIBUTIONS ARE A PART OF INCOME FROM WORKS

c)    BUT NOT AVAILABLE TO HOUSE HOLD SECTOR IMMEDIATELY

d)    SOCIAL SECURITY CONTRIBUTIONS ARE A PART OF NATIONAL INCOME BUT NOT OF PRIVATE INCOME

• INTEREST ON NATIONAL DEBT
• WAR AND OTHER UNPRODUCTIVE EXPENDITURE IS FINANCED BY GOVERNMENT BY TAKING LOAN FROM PEOPLE
• NO CHANGE IN THE FLOW OF GOODS AND SERVICES
• INTEREST ON IT NOT TREATED AS FACTOR INCOME BUT TREATED AS TRANSFER PAYMENTS
• BUT IF LOAN TAKEN RESULT IN FLOW OF GOODS AND SERVICE BUT ACCORDING TO CONVENTIONS OF NATIONAL INCOME ACCOUNTS,INTEREST PAYMENTS ON ALL KINDS OF NATIONAL DEBT IS NOT INCLUDED IN NATIONAL INCOME BUT PART OF PRIVATE INCOME

Ø  FACTOR INCOME AND TRANSFER INCOME

• FACTOR INCOME:- IS THE INCOME OF FACTOR OWNER RECEIVED FROM PRODUCING SECTOR IN EXCHANGE FOR THE PRODUCTIVE SERVICES RENDERED BY FACTORS OF PRODUCTION. IN MODERN ECONOMIES FACTOR INCOME IN PAID IN FORM OF MONEY BUT THESE MAY BE PAID IN THE FORM OF KIND ALSO.
• LAND----RENT
• LABOUR----WAGES
• INTEREST----REWARD FOR THE USE OF CAPITAL
• PROFIT---AS REWARD FOR ENTREPRENEURSHIP
• TRANSFER INCOME OR TRANSFER PAYMENTS_THE INDIVIDUALS AND HOUSEHOLD SECTOR GET SOME PAYMENTS WITHOUT RENDERING FACTOR SERVICES. UNILATERAL PAYMENTS. OLD AGE PENSIONS,SCHOLARSHIPS ETC
• IN NATIONAL INCOME ONLY FACTOR INCOME IS TAKEN NOT TRANSFER INCOME
• AGGREGATE OR CONCEPTS

1. GDP AT MP
2. GNP AT MP
3. NNP AT MP
4. NDP AT MP
5. GDP AT FACTOR COST
6. NNP AT FACTOR COST
7. NDP AT FACTOR COST

8. INCOME FROM NET DOMESTIC PRODUCT ACCRUING TO PRIVATE SECTOR
9. GROSS NATIONAL PRODUCT AT FACTOR COST
10. PRIVATE INCOME
11. PERSONAL INCOME
12. DISPOSABLE INOME

• GROSS DOMESTIC PRODUCT AT MARKET PRICE
• DERNBURG,” GROSS DOMESTIC PRODUCT AT MARKET PRICE IS DEFINED AS THE MARKET VALUE OF THE OUTPUT OF FINAL GOODS AND SERVICES CURRENTLY PRODUCED IN THE DOMESTIC TERRITORY OF A COUNTRY DURING AN ACCOUNTING YEAR.
• GDP =PXQ
• THREE IMPORTANT FEATURES:-

1. GROSS
2. DOMESTIC
3. VALUE OF FINAL GOODS AND SERVICES

• GROSS NATIONAL PRODUCT AT MARKET PRICES
• IS THE MARKET VALUE OF FINAL GOODS AND SERVICES PRODUCED DURING A YEAR BY THE NORMAL RESIDENT OF THE COUNTRY IN DOMESTIC TERRITORY AS WELL IN THE REST OF THE WORLD.
• GNP AT MP =GDP AT MP + NET FACTOR INCOME FROM ABROAD
• NET FACTOR INCOME IS THE DIFFERENCE BETWEEN THE FACTOR INCOME EARNED FROM ABROAD BY THE NORMAL RESIDENTS OF A COUNTRY AND INCOME PAID FOR THE FACTORS SERVICES RENDERED BY NON RESIDENTS WITH IN THE DOMESTIC TERRITORY OF THE COUNTRY.
• NET NATIONAL PRODUCT AT MARKET PRICE
• NET NATIONAL PRODUCT AT MARKET PRICE IS THE MARKET VALUE OF THE NET OUTPUT OF FINAL GOODS AND SERVICES PRODUCED BY AN ECONOMY DURING AN ACCOUNTING YEAR AND NET FACTOR INCOME FROM ABROAD.
• NNP AT MARKET PRICE = MARKET VALUE OF FINAL GOODS AND SERVICES PRODUCED DURING A YEAR+ NET FACTOR INCOME FROM ABROAD –DEPRECIATION OR CAPITAL CONSUMPTION

• CAPITAL CONSUMPTION INVOLVES THREE TYPES OF EXPENSES:-

1)    NORMAL WEAR AND TEAR

2)    OBSOLESCENCE

3)    ACCIDENTAL BREAKDOWN OF THE MACHINERY

• NET DOMESTIC  AT MARKET PRICE
• NET DOMESTIC PRODUCT AT MARKET PRICE IS THE MARKET VALUE OF NET OUTPUT OF FINAL GOODS AND SERVICES PROVIDED IN THE DOMESTIC TERRITORY OF A COUNTRY BY ITS NORMAL RESIDENTS DURING AN ACCOUNTING YEAR.
• NDP AT MP = VALUE OF CURRENTLY PRODUCED AT FINAL GOODS AND SERVICES –CAPITAL CONSUMPTION OR DEPRECIATION.