7) National lncome
Introduction:
National income is one of the importance subject matter
of macroeconomics. It estimates the overall performance
of economic activities such as production, distribution,
exchange and consumption in an economy during a
financial year. The first official attempt of estimating
National income was made by National Income
Committee under the leadership professor P.C.
Mahalanobis in the year 1949. The Central Statistical
Organisation has been estimating India’s National
Income.
Meaning:
National income is the money value of all goods and
services produced in a country by its citizens during a
given period of time. Alternatively, national income
means the total income received by all the owners of
factors of production in a country in the form of rent,
wages, interest, profits and mixed income along with net
income from abroad during a given year.
Definitions:
1. ``A national income estimates measures the volume
of comedities and services turned out during a given
period counted without duplication.”
-National Income Committee
2. ``National dividend is that part of objective income
of the community including of course income
derived from abroad ,which can be measured in
money.”_Prof.A.C.Pigou
Q. Identify the concept and explain it.
Shobha collected data regarding the money
value of all final goods and services produced in
the country for the financial year 2019-20.
Ans- National Income
Concept – above definitions
Q.Explain the features of national income.
1. Macro economic concept:
Macro economics deals with aggregate study of
economy. National income data presents the picture of
the overall performance of the countries economy as a
whole during a year .Thus ,national income is a macro
economic concept.
2.Flow concept:
National income is not a stock field of goods and
services produced in the past, but a flow concept. It
includes only those final goods and services which are
actually produced during a year.
Q. Identify and explain the following concept.
Rajendra has a total stock of 500 gel pens in his
shop which includes the 200 gel pens produced
in the previous financial year.
Ans-Flow concept
Concept: above explanation
3. Money value:
National income is always expressed him terms of
money value or monetary terms. It includes only
those goods and services which are exchanged for
money.
4. Value of only final goods and services:
National income includes the money value of only
final goods and services. It excludes the value of raw
material, intermediate products and second -hand
goods to avoid double counting.e.g. while estimating
the production of shirts ,there is no need to take the
value of cotton ,as it is already included in the price
of the shirts.
5. Net aggregate value:
National income is the net aggregate value of final
goods and services produced in the economy during
a year.Therefore, the depreciation cost i.e.wear and
tear of capital goods is deducted from the gross
value.
6. Net income from abroad:
National income includes net income from abroad
that is difference between export value and import
value (X-M)and net difference between receipts from
abroad and payments made abroad (R-P).
7. Financial year:
National income is expressed annually. It is generally
calculated for a financial year i.e. 1stApril to 31st
March.
Q. Explain the two sector model of circular flow of
national income.
The circular flow of income refers to the process
whereby an economy’s money receipts and
payments flow in a circular manner continuously
through time. circular flow of income is the basic
concept in macro economics.
Circular flow of income can be determine for the
following:
1)2 sector economy that is households and business
firms. It can be denoted as
Y=C+I
2)Three sector economy that is household, business
firms and government sector. It can be denoted as
Y=C+I+G
3)Four sector economy that is households, business
firms, Government and foreign sector. it can be
denoted as
Y=C+I+G+(X-M)
THE CIRCULAR FLOW OF NATIONAL INCOME IN A
TWO SECTOR MODEL-
There are two sectors that is households and firms
.using diagram it divides into two parts .the upper
half represent the factor market and the lower half
represents the commodity market.
