Professional Documents
Culture Documents
Concepts of National Income
Concepts of National Income
Concepts of National Income
NATIONAL INCOME
The total amount of income accruing to a country from economic activities in a year’s time
is known as national income. It includes payments made to all resources in the form of
wages, interest, rent and profits.
CONTENTS
“The labour and capital of a country acting on its natural resources produce annually a
certain net aggregate of commodities, material and immaterial including services of all
kinds. This is the true net annual income or revenue of the country or national dividend.” In
this definition, the word ‘net’ refers to deductions from the gross national income in respect
of depreciation and wearing out of machines. And to this, must be added income from
abroad.
National income or national product
National Income and Related Aggregates
• Is defined as the total market value of all the final goods and services produced
in an economy in a given period of time.
• This suggests that labor and capital of a country, working on the natural
resources produces certain net amount of goods and services, the aggregates of which
as known as national income or national product.
• There are many concepts of national income which are used by different
economists and all of which are inter-related. These concepts are:
1. Gross National Product at Market Price (GNP mp)
• GNP mp refers to the total value of all the final goods and services produced during
the period of one year plus the net factor incomes earned from abroad during the
year.
• The word “gross” is used to indicate that the total national product includes in it that
part of product which represents depreciation.
• Depreciation means the wear and tear of the machinery and other fixed capital during
the process of production.
• GNP includes the economic activities of all the residents of a nation whether
operating within the country or outside it.
It takes into account the incomes which the residents get from rest of the world
and at the same time it excludes those incomes which arise from the economic
activities within the country but have to paid out to the non-residents
GNP being the monetary measure of all final goods and services produced, is
widely used as an index for judging the performance of an economy.
• A price index (plural: “price indices” or “price indexes”) is a normalized average (typically a weighted average) of
• prices for a given class of goods or services in a given region, during a given interval of time. It is a statistic designed to
help to compare how these prices, taken as a whole, differ between time periods or geographical locations.
• Price indices have several potential uses. For particularly broad indices, the index can be said to measure the economy's
price level or a cost of living. More narrow price indices can help producers with business plans and pricing. Sometimes,
they can be useful in helping to guide investment.
• The GDP deflator (implicit price deflator for GDP) is a measure of the level of prices
of all new, domestically produced, final goods and services in an economy. In most
systems of national accounts the GDP deflator measures the ratio of nominal (or
current-price) GDP to the real (or chain volume) measure of GDP.
• The GDP deflator is utilized as a measure of shifts in the prices of goods and services
that are produced in a given country.
• It is understood that the GDP deflator can help provide a more accurate picture of the
current status of the gross domestic product within the country. Because the GDP
deflator is understood to be an example of an implicit price deflator for GDP,
economists consider calculating this economic indicator as an essential component in
ascertaining the current strength or weakness of the country’s economy.
INDEX NUMBERS
An INDEX NUMBER measures the variation in the time series in a period as a percentage of the time series in a base period.
• LASPEYRES INDEX number measures the change in price for a fixed buying pattern.
The LASPEYRES INDEX for the n-th period is obtained by the following formula:
L=100 x Σ pni q0i
Σ p0i q0i
• PAASCHE INDEX number, measures the change in price for a fixed buying pattern, in the case the quantity change from the
base year amount.
The PAASCHE INDEX for the n-th period is obtained by the following formula:
P= 100 x Σ pni qni
Σ p0i qni
INDEX number, measures the average change in price for a fixed buying pattern.
The INDEX for the n-th period is obtained by the following formula:
For the above example, we have:
• L1:0 = 100 x (776.06x102.1 + 3345.56x1.8)/(562.48x102.1+2677x1.8) = 136.9616
I = (Square root of L * P)
NEW SERIES ON
NATIONAL ACCOUNTS STATISTICS
WITH 1993-94 AS THE BASE YEAR
• In the past, National Accounts Statistics have been revised decennially changing the base to a
year in which decennial Population Census has been
conducted.
• It was primarily because in the base year estimates, the information on working force has played
an important role and working force estimates have been obtained from the population census
which are conducted decennially. In this sequence, the base of the National Accounts Statistics
should have been revised to 1990-91 from 1980-81.
• It may be mentioned that any major changes in the choice of the alternative sets of data or
methodologies are considered only along with the base year revision exercise.
• It has been customary not to make changes every now and then and necessary major changes are
kept for implementation at the time of base year revision exercise.
• In the present revision exercise, the CSO has mainly been guided by three
considerations, namely;
• (i) revision of base year to a more recent year
(for meaningful analysis of the structural changes in the economy),
• (ii) complete review of the existing data base and methodology employed in the
estimation of various macro-economic aggregates including choice of the alternative
databases on individual subjects, and
• (iii) to the extent feasible, implementing the recommendations of the 1993 System of
National Accounts(1993 SNA).
Of the various methodological improvements/changes in databases effected in the new series
mention may be made of the following:
• Estimation of working force by economic activities using the worker population ratio and the
workforce participation rates estimates based on the quinquennial survey on employment and
unemployment conducted by the NSSO, 1993-94 (50th round) and the total population as
obtained from the 1991 population census;
• Coverage of the agricultural production in the fore/backyard, floriculture, deep sea fishing,
valuation of the output of prawns and shrimps separately, data on which is available from the
Ministry of Agriculture;
• Estimating GDP relating to trading activities in the private organised segment of the economy
using the working force estimates available from DGE&T and inclusion of activities relating to
National Industrial Classification, 1987 (NIC) codes 840 and 841 (lottery sales, services) for
the first time;