Economics

First set of study material on Economics: Basic Concepts




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National income(NI) is the measure of total goods and services produced within a country within a year. There are various measures of National Income. They are: i) GDP ii) GNP iii) NNP iv) NNPFC v) PI vi) DPI.

GDP (Gross Domestic Product): It is the total value of final goods and services produced within a country during a given period of time generally one year.

If Q is the total goods produced in a country (by the nationals and foreigners within the territory of that country) and P is the prices of per unit of goods and services, then the GDP= Q*P.

GNP (Gross National Product): It is the total value of final goods and services produced by the nationals of a country during a given period of time generally one year. Here contribution of nationals of a country and non-residents are included wherever it has been generated, whereas the income of foreign nationals in a country are excluded.

So, GNP= GDP+(X-M) where X= export or inward remittances of a country and M= import or outward remittances of a country. Therefore, (X-M) = Net factor income from abroad

NNP (Net National Product): GNP-Depreciation.



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Depreciation is the wear and tear of goods produced. A part of the produced goods value goes in to replace the depreciated part of the earlier produce. So, it is deducted.

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NNPFC (Net National Product at Factor Cost): It is the cost incurred to produce the goods and services. This cost is the cost of factor of production e.g. land, labour, capital etc. NNP is calculated at market price(NNPMP). Market price includes indirect taxes and subsidies. NNPFC is arrived at after deducting indirect taxes and adding subsidies to NNPMP.

NNPFC= NNPMP -Indirect Taxes+ Subsidies.

GDP at Factor Cost can also be calculated by deducting indirect taxes and adding subsidies.

PI (Personal Income): It is the sum of all the income received by the entire people of the country in one year. Some part of national income is not available to the nationals of a country and some of the personal income of individuals are not included in national income of a country. So, these parts are deducted and added respectively from the national income to arrive at personal income.

Therefore, PI= NI+ Net Transfer Payment

Net transfer payment= [Transfer payment – Undistributed profits of corporate+ Payments of social security provisions)



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Transfer payments are those payments that are made not against any productive activity on the part of the receiver. Such as: Unemployment compensation, Old age pension, etc)

Payment of social security provisions are pension, provident fund made by employees.

DPI (disposable Personal Income): Income available to the individuals that can be disposed(spent) at their will. Direct taxes like Income tax has to be deducted from personal income to arrive at it.

DPI= PI- direct taxes.

National Income at constant price and current price:

The national income is calculated with respect to a particular year. It is called the base year. Price level of this year is called the Constant Price.

National income at constant price is the total quantity of final goods and services produced in a year multiplied by the price of the base year or constant price. It is called the Real Income.

National income at current price is the total quantity of final goods and services produced in a year multiplied by the price of the current year or current price. It is called the Nominal Income.

Now the ‘base year’ for the calculation of NI in India by CSO is 2011-12. Earlier it was 2004-05.

    • Calculation of economic indicators at base price or constant price is useful to find out the actual growth.
    • Base year change takes into account the structural change in the economy.
    • Base year should be a normal year without drastic change in the indicators e.g. prices.

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Prepared by Bratajit Saha.




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