Lecture Notes: Measurement of National Income

Overview

• Topic: National Income Measurement
• Importance: This chapter is worth 12 marks in exams, with 6 marks dedicated to numerical questions
• Covered Methods: Product Method, Income Method, Expenditure Method

Topics to be Covered

1. Product Method (Value Added Method) for National Income
   • Precautions
   • Difficulties
   • Numerical Practice
2. Income Method for National Income
   • Precautions
   • Difficulties
   • Numerical Practice
3. Expenditure Method for National Income
   • Precautions
   • Difficulties
   • Numerical Practice

Conversions

• Gross and Net
  • Gross = Total production
  • Net = Gross - Depreciation (Current Replacement Cost or Consumption of Fixed Capital)
• Factor Cost and Market Price
  • Market Price = Factor Cost + Net Indirect Taxes (Indirect Taxes - Subsidies)
  • Factor Cost = Market Price - Net Indirect Taxes
• Domestic and National
  • National = Domestic + NFIA (Net Factor Income from Abroad)
  • Domestic = National - NFIA

Key Terms

• Gross: Total production before deductions
• Net: After accounting for depreciation
• Factor Cost: Cost of production
• Market Price: Selling price in the market, including taxes
• NFIA: Net Factor Income from Abroad (Income from abroad - Income sent abroad)

Abbreviations

• NDP: Net Domestic Product
• MP: Market Price
• GNP: Gross National Product
• FC: Factor Cost
• ND: Net Domestic
• NDP(MP): Net Domestic Product at Market Price
• GNP(FC): Gross National Product at Factor Cost

Numerical Formulas

• Product Method Formula for Gross Value Added (GVA):
  • GVA = Value of Output - Intermediate Consumption
  • Value of Output = Sales + Change in Stock
  • Change in Stock = Closing Stock - Opening Stock
• National Income Calculation
  • NI = NNP (FC) = GDP (MP) - Depreciation + NFIA - NIT

Example Problem

Given Data

• Value of Output by Primary Sector: 200
• Value of Output by Secondary Sector: 250
• Value of Output by Tertiary Sector: 300
• Intermediate Consumption:
  • Primary Sector: 50
  • Secondary Sector: 60
  • Tertiary Sector: 60
• NFIA: -15
• NIT: 25
• Depreciation: 20

Calculation Steps

1. Gross Value Added (GVA)
   • Primary Sector: 200 - 50 = 150
   • Secondary Sector: 250 - 60 = 190
   • Tertiary Sector: 300 - 60 = 240
   • Total GVA: 150 + 190 + 240 = 580
2. Calculate GDP (MP): 580
3. Convert to NNP (FC) / National Income:
   • NNP (FC) = GDP(MP) - Depreciation + NFIA - NIT
   • Substituting values: 580 - 20 + (-15) - 25 = 520

Additional Problem

• NFIA: 20
• Sales by A: 1000
• Sales by B: 2000
• Change in Stock of B: -200
• Closing Stock of A: 50
• Opening Stock of A: 100
• Depreciation: 180
• Indirect Taxes by A and B: 120
• Purchase of Raw Material by A: 50
• Purchase of Raw Material by B: 700

Calculation Steps

1. GVA for Firm A and B
2. GDP (MP)
3. NNP (FC)

Final Calculation: Step-by-step breakdown provided in the transcript.