Managerial Economics - Macro Economics
Approaches To Calculate National Income - Macro Economics
Posted On :
The income of individuals from employment and business, the profits of the firms and public sector earnings are taken into consideration.
Approaches
To Calculate National Income:
The income of individuals from employment and business, the profits of the firms and public sector earnings are taken into consideration.
National Income is the income of individuals + self employment + profits of firms and public corporate bodies + rent + interest (transfer payments, scholarships, pensions are not included) this includes the sum of the income earned by individuals from various input factors such as rent of land, wages and salaries of employees, interest on capital, profits of entrepreneurs and income of self employed people. This method indicates the income distribution among various income groups of people.
In this approach national income is calculated by using the expenditure of individuals, private, government and foreign sectors. i.e. the sum of all the expenditure made on goods and services during a year. i.e.
National Income = Expenditure Of Individuals + Govt. + Private Firms + Foreigners
GDP = C + I + G + (X-M)
Where,
C = expenditure on consumer goods and services by individuals and households
I = expenditure by private business enterprises on capital goods
G = government expenditure on goods and services (government purchase)
X-M = exports - imports
In this approach we measure the value of output produced by firms and other organization in a particular time period. i.e. the National Income = income from agriculture + fishery + forestry + construction + transportation + manufacturing + tourism + water + energy …
Gdp At Market Price + Subsidies –Taxes
Gnp At Factor Cost + Net Income From Abroad
1. Quantity of goods and services produced by the country. Higher the quantity of production, higher shall be the national income.
2. Quality of products and services produced in the country will also determine the national income of a country.
3. Innovation of more technical skills will improve the productivity which will reflect on national income of the country.
4. Political stability strengthens the national income of an economy.
1. Any income earned abroad have to be included
2. To avoid double counting, value added method should be considered
3. Services rendered free of charges are not to be included
4. Capital gains, transfer payments are not to be included
5. Changes in price level will also affect the calculation
6. Value of military services will not be taken into consideration.
1. Non monetized sector: there are number of sectors in which the wages and salaries are provided in kind, not in monetary measures.
2. Illiteracy: due to higher illiteracy rate the results may be biased.
3. Lack of occupational specification: we have difficulty in classifying the nature of the job existing in India.
4. Unorganized productive activities: people involved in unorganized productive activities are not fully covered in the calculation of national income.
5. Lack of adequate statistical data: Inadequate data leads to approximation of the calculation.
6. Self consumption: Farm products kept for self consumption are not considered for the national income calculation.
7. Unpaid Services: services of house wives are not reckoned as national income.
1. National income is a measure of economic growth
2. National income is an indicator of success or failure of planning
3. Useful in estimating per capita income
4. Useful in assessing the performance of different production sectors
5. Useful in measuring inequalities in the distribution of income
6. Useful in measuring standard of living
7. Useful in revealing the consumption behaviour of the society
8. Useful in measuring the level and pattern of investment
9. Makes international comparisons possible
It is difficult to compare the national income of a country with others due to the difference in population size, working hours of labour force, currency values in the market, consumption pattern of general public, cultural difference and inflationary pressure of the country. Even with all the above mentioned difficulties the GDP is the major economic indicator of an economy.
The managers of various organizations in different sectors follow the national income statistics to take managerial decisions at the firm level. Particularly national income data is useful for the marketing managers, financial managers, production managers, and advertising agents of any firm. The macro level policy makers will also use the data for their decision making. The following chapter provides the details regarding the major economic indicators of India.
The Income Approach:
The income of individuals from employment and business, the profits of the firms and public sector earnings are taken into consideration.
National Income is the income of individuals + self employment + profits of firms and public corporate bodies + rent + interest (transfer payments, scholarships, pensions are not included) this includes the sum of the income earned by individuals from various input factors such as rent of land, wages and salaries of employees, interest on capital, profits of entrepreneurs and income of self employed people. This method indicates the income distribution among various income groups of people.
The Expenditure Approach:
In this approach national income is calculated by using the expenditure of individuals, private, government and foreign sectors. i.e. the sum of all the expenditure made on goods and services during a year. i.e.
National Income = Expenditure Of Individuals + Govt. + Private Firms + Foreigners
GDP = C + I + G + (X-M)
Where,
C = expenditure on consumer goods and services by individuals and households
I = expenditure by private business enterprises on capital goods
G = government expenditure on goods and services (government purchase)
X-M = exports - imports
The Output Approach:
In this approach we measure the value of output produced by firms and other organization in a particular time period. i.e. the National Income = income from agriculture + fishery + forestry + construction + transportation + manufacturing + tourism + water + energy …
Gdp At Market Price + Subsidies –Taxes
Gnp At Factor Cost + Net Income From Abroad
Factors Determining National Income:
1. Quantity of goods and services produced by the country. Higher the quantity of production, higher shall be the national income.
2. Quality of products and services produced in the country will also determine the national income of a country.
3. Innovation of more technical skills will improve the productivity which will reflect on national income of the country.
4. Political stability strengthens the national income of an economy.
Difficulties In The Calculation Of National Income:
1. Any income earned abroad have to be included
2. To avoid double counting, value added method should be considered
3. Services rendered free of charges are not to be included
4. Capital gains, transfer payments are not to be included
5. Changes in price level will also affect the calculation
6. Value of military services will not be taken into consideration.
Problems In Measuring National Income In India:
1. Non monetized sector: there are number of sectors in which the wages and salaries are provided in kind, not in monetary measures.
2. Illiteracy: due to higher illiteracy rate the results may be biased.
3. Lack of occupational specification: we have difficulty in classifying the nature of the job existing in India.
4. Unorganized productive activities: people involved in unorganized productive activities are not fully covered in the calculation of national income.
5. Lack of adequate statistical data: Inadequate data leads to approximation of the calculation.
6. Self consumption: Farm products kept for self consumption are not considered for the national income calculation.
7. Unpaid Services: services of house wives are not reckoned as national income.
Uses Of National Income Estimates:
1. National income is a measure of economic growth
2. National income is an indicator of success or failure of planning
3. Useful in estimating per capita income
4. Useful in assessing the performance of different production sectors
5. Useful in measuring inequalities in the distribution of income
6. Useful in measuring standard of living
7. Useful in revealing the consumption behaviour of the society
8. Useful in measuring the level and pattern of investment
9. Makes international comparisons possible
Difficulties Of Comparing National Income:
It is difficult to compare the national income of a country with others due to the difference in population size, working hours of labour force, currency values in the market, consumption pattern of general public, cultural difference and inflationary pressure of the country. Even with all the above mentioned difficulties the GDP is the major economic indicator of an economy.
National Income And Managers:
The managers of various organizations in different sectors follow the national income statistics to take managerial decisions at the firm level. Particularly national income data is useful for the marketing managers, financial managers, production managers, and advertising agents of any firm. The macro level policy makers will also use the data for their decision making. The following chapter provides the details regarding the major economic indicators of India.
Tags : Managerial Economics - Macro Economics
Last 30 days 421 views
