Chapter 2
This presentation is the property of its rightful owner.
Sponsored Links
1 / 17

National Income PowerPoint PPT Presentation


  • 61 Views
  • Uploaded on
  • Presentation posted in: General

Chapter 2. National Income. 1. Central endogenous macroeconomic variables. * Real income / growth rate. * Unemployment / employment rate. * Inflation rate. They must be uniquely defined before their behaviour could be explained / predicted. Group Low income countries

Download Presentation

National Income

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


National income

Chapter 2

National Income


National income

1. Central endogenous macroeconomic variables

* Real income / growth rate

* Unemployment / employment rate

* Inflation rate

They must be uniquely defined before their

behaviour could be explained / predicted


2 countries world bank atlas classification

Group

Low income countries

Lower middle income countries

Upper middle income countries

High income countries

Per capita GNP (1999)

$755 and less

$756 – 2,995

2,996 – 9,265

9,266 and above

2. Countries:World Bank atlas classification


National income

3. Income concepts

  • Gross National Product (GNP)

  • Net National Product (NNP)

  • Gross Domestic Product (GDP)

  • Net Domestic Product (NDP)

-at Market prices / factor cost

  • Private income

  • Personal income

  • Personal disposable Income

    - at current prices


National income

  • 4.GNPM stands for the monetary value of

  • all goods and services that are

  • (a) currently produced (flows only)

  • (b) sold through the official market (2 exceptions)

(c) not resold or used in further production

(final goods only)

(d) produced anywhere but by the nationally

owned resources

(e) valued at the market prices


5 under estimation of income

5. Under estimation of income

  • Do it yourself activities

  • Parallel /black economy

    • Illegal production

    • Legal but un / under reported production


National income

6. Fundamental income identities

  • GNPF = GNPM ‑ Ti + S(2.1)

  • GDPF = GNPF ‑ NIA(2.2)

    • (domestic territory)

  • NNPF = GNPF ‑ D(2.3)

  • NDPF = GDPF ‑ D(2.4)

  • Pvt. I = NNPF ‑ IAD ‑ END + NDI + TAD + OTA

  • (2.5)

  • PI = Pvt. I ‑ RE – CT(2.6)


  • National income

    • PDI = PI ‑ HDT – MAD (2.7)

  • S + T + M = I + G + X (2.8)

  • - Three gaps

  • - Measurement alternatives:

  • Production = Income = Expenditure (2.9)

  • GDPF = P1Q1 + P2Q2 + ........+ PnQn

  • (2.10)

  • NDPF = W + R + I + P (2.11)

  • GDPM = C + I + G + X – M (2.12)


  • National income

    Table 2.1: National Income and Related Aggregates (at current prices)

    (Rs crores)

    Variable

    1980-81

    1990-91

    2000-01

    1. GNP at market prices

    136358

    527989

    2070574

    1.1 Indirect taxes

    16746

    76329

    247528

    1.2 Subsidies

    3160

    18609

    55383

    2. GNP at factor cost (1-1.1+1.2)

    122772

    470269

    1878429

    2.1 Net factor income earned abroad

    345

    –7545

    –17414

    3. GDP at factor cost (2-2.1)

    122427

    477814

    1895843

    3.1 Capital consumption

    12087

    52195

    198447

    4. NNP at factor cost (NI) (2-3.1)

    110685

    418074

    1679982

    5. NDP at factor cost (3-3.1)

    110340

    425619

    1697396

    5.1 Income of govt. admn. depts. from entrep. and property

    554

    4584

    19887

    5.2 Saving of govt. non-dept. enterprises

    –820

    2555

    21591

    5.3 National debt interest

    1524

    20233

    109222

    5.4 Current transfers from govt. admn. dept.

    2835

    15641

    61300

    5.5 Other net current transfers from abroad

    2257

    3711

    58412

    6. Private income (4-5.1-5.2+5.3+5.4+5.5)

    117567

    450520

    1867438

    6.1 Retained earnings of nation's private sector

    584

    6198

    30531

    6.2 Corporate tax

    1378

    5335

    28487

    7. Personal income (6-6.1-6.2)

    115605

    438987

    1808420

    7.1 Household direct tax

    2197

    7593

    50996

    7.2 Miscellaneous receipt of govt. admn. dept.

    303

    2097

    7317

    8. Personal disposable income (7-7.1-7.2)

    113105

    429297

    1750107

    Source:

    CSO:

    National Accounts Statistics

    , Various Issues.


    National income

    7. Circular flow of income

    G + TP = T + GBD (2.13)

    (2.14)

    (2.15)


    National income

    Figure 1: Circular Flow of Income

    14

    Investments

    Financial

    PersSav.

    11

    Institutions

    Govt. Savings

    13

    (-ve)

    5

    1

    RE

    D

    Government

    NDI+TP

    • Per.TP

    4

    2

    CT

    T

    12

    8

    i

    HDT

    3

    S

    Govt. C

    9

    7

    [Rents+Wages

    6

    Interest+Profit]

    Households

    Firms

    FOP

    GNP

    10

    Pvt. Consumption

    Exports

    Imports

    15

    16

    Rest of the

    World


    National income

    8.PPP income

    • PPP of Indian rupee = Number of rupees

    • required to purchase a representative basket

    • of goods and services in India that one US

    • dollar will buy in USA

  • PPP income of India =

  • * Paradox : Official forex rate = Rs 46/US $

  • PPP ( India ) = 12

    • * Is rupee over/under valued ?


  • National income

    9. Human development index / QLI index

    * Extreme values : Max. = 1, min. = 0

    * Three ingredients

    • - Per capita GDP (PPP)

    • - Life expectancy at birth(Min. : 25 years,

    • Max. : 85 years)

    • - Adult literacy (W=2/3) and primary, secondary

    • and tertiary enrolment rate(W=1/3) (min. 5%,

    • max. 100%)

    • * India’s HDI = 0.590, Rank = 127/175 (2001)

    • USA = 0.937

  • Canada = 0.937

  • Norway = 0.944 (Max.)


  • National income

    10. Income and economic welfare

    • National Income suffers from twin issues:

      • * Measurement errors

      • a) ignores the non‑market and black (parallel) economy

      • b) measures services sector output erroneously

      • c) ignores the quality of products, which may not be

      • accurately measured by their prices

      • d) measures output at the official exchange rate

      • *Imperfectmeasure of economic welfare

      • e)ignores the benefits due to leisure

      • f) equates goods (education) and bads (weapons)/

      • public/ merit/ other goods

      • g) ignores income distribution

        • h) counts both addictions (drinking) and cures

        • (medicines for drunks)


    National income

    • Ignores costs of growth, associated with traffic congestion, pollution, accidents, use of natural resources, environment degradation etc

    • Ignores weather conditions

    • Includes income generated through non‑productive activities such as defense, police and courts, which are considered ‘regrettable’ goods. They may be necessary but do not contribute to the standard of living or quality of life

    • Ignores the quality of life, which is influenced by education, health, living together, love to own land, human freedom etc.

    • Ignores ethics, values, traditions, culture, customs, habits, religious, emotions etc.

    • Bottom-line: per capita income, non-market and black economy,

    • saving and investment rates


    11 international scenario

    11. International scenario

    • Size

    • Per capita income

    • Growth rate

    • HDI

    • Life expectancy

    • Literacy


    National income

    Table 2.5: International Data on Income and Related Variables

    Country

    GNP

    at

    current

    GNP

    per

    capita

    at

    Real GDP per

    Life expectancy

    Adult illiteracy

    HDI

    prices

    current prices

    capita growth

    at birth

    2001

    2001

    rate 1990-2001

    2002

    2002

    ( %)

    2001

    (Billion US $)

    (US $)

    (Years)

    ( Years)

    Measurd

    PPP

    Measurd

    PPP

    (%)

    Males

    Females

    Males

    Females

    (Max 1)

    India

    502

    2691

    480

    2570

    4

    64

    63

    31

    54

    0.59

    USA

    10110

    10110

    35060

    35060

    2.1

    80

    74

    0

    0

    0.937

    Canada

    701

    882

    22300

    28070

    2.1

    82

    76

    0

    0

    0.937

    UK

    1486

    1523

    25250

    25870

    2.5

    80

    75

    0

    0

    0.93

    Japan

    4266

    3315

    33550

    26070

    1

    85

    78

    0

    0

    0.932

    Switzerland

    274

    226

    37930

    31250

    0.3

    82

    76

    0

    0

    0.932

    Singapore

    86

    96

    20690

    23090

    4.4

    80

    76

    4

    11

    0.884

    Indonesia

    150

    632

    710

    2990

    2.3

    68

    64

    8

    17

    0.682

    Malaysia

    86

    201

    3540

    8280

    3.9

    75

    70

    8

    16

    0.79

    Republic of

    473

    785

    9930

    16480

    4.7

    79

    71

    1

    3

    0.879

    Korea

    China

    1210

    5625

    940

    4390

    8.8

    73

    69

    8

    21

    0.721

    Pakistan

    59

    281

    410

    1940

    1.2

    60

    61

    42

    71

    0.499

    Sri Lanka

    19

    64

    840

    3390

    3.6

    76

    70

    5

    11

    0.73

    Australia

    387

    528

    19740

    26960

    2.7

    82

    76

    0

    0

    0.939

    Nigeria

    39

    103

    290

    780

    -0.3

    52

    51

    27

    42

    0.463

    Russian

    308

    1127

    2140

    7820

    -3.5

    73

    61

    0

    1

    0.779

    Federation

    World

    31484

    46952

    5080

    7570

    1.2

    -

    -

    -

    -

    0.772

    Sources:

    World Development Report 2003, UNDP: Human Development Report 2003, and World Bank: World


  • Login