CLASS:XII

SUBJECT:MACROECONOMICS

NATIONAL INCOME AND RELATED AGGREGATES

National income is a money measure of the value of all goods and services produced in a year by a nation.

• It is Net National Product (NNP) at Factor Cost (FC)
• It does not include taxes, depreciation and non-factor inputs (raw materials)

Domestic Income – Total value of final goods and services produced within a domestic territory during an accounting year, after adjusting depreciation.

• It is NDP at FC
• Both NNP and NDP can be measured at constant prices (real income) or market prices (nominal income)
• Domestic Income + NFIA = National Income

Q1. Define real GNP.

Answer: Gross national product is calculated at constant prices i.e., via base year price is known as real GNP in economics.

Q2. What is national disposable income?

Answer: National disposable income is that type of an income which is obtainable to the whole economy .

1.  NNP:If we deduct depreciation from gross product we obtain net product. GDP minus depreciation is called NNP. NNP is sometimes called national income.

NNP = GNP – depreciation

2. GDP:GDP measures the aggregate money value of output produced by the economy over a year.

GDP at factor cost = GDP at market prices – indirect taxes (T) + subsidies (SU )

3. GNP includes GDP plus net property income from abroad. Thus, GNP includes incomes that nationals earn abroad, but it does not include the incomes earned by foreign nationals.

GNP = GDP + net property income from abroad.

Measurement of National Income

There are three methods to measure national income:

Methods to Measure National Income
S.No	Measurement Method
1.	Income Method
2.	Production (Value-Added) Method
3.	Expenditure Method

• Measurement of National Income – Expenditure Method

The expenditure method to measure national income can be understood by the equation given below:

Y = C + I + G + (X-M),

where Y = GDP at MP, C = Private Sector’s Expenditure on final consumer goods, G = Govt’s expenditure on final consumer goods, I = Investment or Capital Formation, X = Exports, I = Imports, X-M = Net Exports

Capital	Net Investment
Capital is tied to liquidity	Investment is tied to equity
Capital is a stock variable	Net Investment is a flow variable
Capital is on the liabilities side of the balance sheet	Investment is on the assets side of the balance sheet

• Expenditure

The expenditure approach is basically an output accounting method. It focuses on finding the total output of a nation by finding the total amount of money spent. This is acceptable to economists, because, like income, the total value of all goods is equal to the total amount of money spent on goods. The basic formula for domestic output takes all the different areas in which money is spent within the region, and then combines them to find the total output.

${\displaystyle \mathrm {GDP} =C+G+I+\left(\mathrm {X} -M\right)}$

where:

C = household consumption expenditures / personal consumption expenditures
I = gross private domestic investment
G = government consumption and gross investment expenditures
X = gross exports of goods and services
M = gross imports of goods and services

• Equilibrium level of national income