ECONOMICS – NATIONAL INCOME
Today’s class began with one of the most
interesting topics to be known in economics – “National Income”.
·
The service
sector, Industrial sector and Agricultural sectors contribute to the National
income of India.
· Indian economy- complex structure.
What makes a
country rich or poor?
·
A country can’t
be termed “Wealthy” if it’s merely resource-rich.
·
The more
effective a country utilizes it’s resources, the more rich it is.
·
A country’s
standard of living can be raised if it’s “Production capacity” is more.
·
Example:
England is a resource-deficit country, yet they have high production capacity
that makes them rich.
·
A nation should
have good income that gives – quality of life, well-being & happiness of
citizens.
·
1990-Mahbub ul
Haq used “Human Development Index” to rank countries based on PCI.
·
Increase in
national income leads to – development.
Moving on to the actual definition of National Income,
“Total money value of all final
goods and services produced in a country during a particular
period of time (one year).”
·
Final goods and
services- used for individual consumption, cannot be transformed into money.
·
As a consumer,
whatever we demand in the market are final goods.
Who measures
the National Income?
“NATIONAL STATISTICAL OFFICE” (NSO) under THE MINISTRY OF STATISTICS AND PROGRAMME DEVELOPMENT
Why should we
measure our national income?
To analyze the,
·
Growth and
development of a nation.
·
Sectoral
strength and weakness of a nation, and formulate policies accordingly.
· Living standard of a country through per-capita income.
HISTORY OF NATIONAL INCOME:
BASE YEAR (Reference year) – is chosen when
the general price level is normal without fluctuations i.e., neither too high
nor too low.
Current base year – 2011 to 2012
Base year changes – 7 times.
FACTORS OF PRODUCTION
– LAND, LABOUR, CAPITAL, ENTREPRENEUR
- A person with an idea to start business-
“Entrepreneur”
- This idea needs an investment i.e., “Capital”
- This shall be implemented in a “Land”, with
“Labors” to work in it.
FACTOR INCOME:
The flow of income derived from the factors of
production.
|
FACTOR OF PRODUCTION |
FLOW OF INCOME |
|
Entrepreneur |
Profit |
|
Capital |
Interest |
|
Land |
Rent |
|
Labor |
Salary/wages |
CIRCULAR FLOW OF INCOME:
The circular flow of income is a
model of the economy in which the major exchanges are represented
as flows of money, goods and services between the production
unit and household (land, labour, capital, entrepreneur).
METHODS OF CALCULATING
NATIONAL INCOME:
1)EXPENDITURE METHOD
2)PRODUCT METHOD
3)INCOME METHOD
EXPENDITURE METHOD:
· Household spending on
firms.
· GDP = C + I + G +
(X-M)
C= Consumption Expenditure
I= Investment Expenditure
G= Subsidies
X= Export
M= Import
CONTENT CREDITS: LEO PRANEETHA
