National Income Accounting

Income?
 Gross Domestic Product (GDP)
It is the total value of final goods and services produced in the domestic territory of a country
during a financial year.

Final Goods Vs Intermediate Goods?

Domestic Territory?
 Gross National Product (GDP)
It is the total value of final goods and services produced by the normal residents/nationals of a
country during a financial year.

A
GDP?
B
C
Overseas
GNP?
Domestic Territory

A & B are normal residents, C is a non- resident

GDP & GNP
GNP=GDP + NFIA
 Gross Vs Net
Net=Gross- Depreciation

Gross: What we have done for value additon..

Net: Effective value addition

NDP?

NNP?
 Domestic Vs National
National=Domestic + NFIA

Depreciation ~ Consumption of fixed capital (CFC)

GNP?

NNP?
 FC Vs MP
Factor Costs?

MP= FC + Net indirect Taxes (NIT)

NIT= Indirect taxes - subsidies

GDPMP ?

For estimating economic growth : MP or FC?

 Current Price Vs Constant Price
Constant Prices: Base Year : to estimate growth

Current Prices: Prevailing prices: Transactions

Year Qty Current Base GDP @ GDP@
Produced Price Year’s Current Constant
Price price Price

2011-12 100 10

2012-13 100 15

2013-14 150 15 2250

Base Year: 2011-12 Real GDP

Nominal
GDP
 Real GDP Vs Nominal GDP
Real GDP ~ GDP @ Constant / Current prices?

Nominal GDP~ GDP @ Constant / Current prices?

Real GDP= Nominal GDP/GDP Deflator X 100

GDP Deflator is an Index Number which is used to measure inflation.

 Index Numbers
Statistical tools to measure change in any variable.

WPI:(2011-12)= 100

Reference Year Reference Value

WPI= 125 , What does this mean?

Sensex = 40000?
Does the growth rate change with
change of base year?
2016-17 2017-18

Q=100 P=10 Q=110 P=11 Growth Rate

Nominal 1000 1210 21% Nominal Growth Rate

GDP

Base year 600 660 10%

Real
2011-12 P=6
GDP Base year 300 330 10%
2004-05 P=3
 National Income
Income earned by normal residents/nationals of a country during a financial
year.

NI is the factor cost of all final goods & services produced by normal
residents/nationals of a country during a financial year.

National Income (NI) = NNPFC

(Net National Product at Factor cost) ( Net means depreciation is not included , National = Domestic + NFIA , Factor cost = MP - NIT )
 National Income Measurement
1. Income Method
Sum of all Factor Incomes = NDPFC
2. Production Method
Sum of all value additions by firms= GDPMP
3. Expenditure Method
Open Expenditure= C+I+G+(X-M)
C= Private final consumption expenditure
G=Govt. final consumption expenditure
I= Expenditure on capital goods (Govt + Pvt)
 National Income Measurement
National Income = National Product=National Expenditure
National Income Measurement
NDP to GDP
FC MP
 Items not included in NI
Transfer Payments?

Capital Gains?

Intermediate Goods?

Black Money?

Housewive service?