by Sundeep

Lavanya
Logesh

Mahendran
 National income analysis
The national income analyses are an accounting
framework used in measuring current economic
activity.
The national income analyses are based on the idea
that the amount of economic activity that occur during
a period of time can be measured in terms of:
1.The amount of output produced, excluding output
used up in intermediate stages of production (product
approach);
2. The income received by the producer of output
(income approach);
3.The amount of spending by the ultimate purchase of
output (expenditure approach);
 EXAMPLE
ORANGE LTD TRANSACTION

Wage paid to orange ltd employee Rs 15000

Taxes paid to government 5000
Revenue received from sale of orange 35000
orange sold to public 10000
orange sold to juice ltd 25000

JUICE LTD TRANCATION

Wage paid to juice ltd employee Rs 10000

Taxes paid to government 2000
Revenue received from sale of orange juice 40000
orange purchased from orange ltd 25000
ORANGE LTD
Orange ltd pays Rs 15000 per year in wages to workers to pick
and sells orange for 35000(Rs 10000 worth of orange to
households and Rs 25000 worth of orange to juice ltd ) .Thus
orange ltd profit before taxes is Rs 35000 – Rs.15000= Rs 20000
Because orange ltd pays taxes of Rs 5000 ,its after tax profit is
Rs 15000.

JUICE LTD

Juice ltd buys Rs 25000 of orange from orange ltd and pays
wages Rs 10000 to worker to process the orange juice. It sells the
orange for Rs 40000, so its profit before taxes is Rs 5000 (Rs
40000-25000-10000 ). After paying taxes of Rs 2000 ,its after
tax profit is Rs 3000.
Product approach
• Market value of final finished goods and services
• Excludes intermediate goods used in intermediate
stages of production
• Value added is the value of output minus value of its
input

EXAMPLE:
Revenue of Orange Inc = 35,000
Value added by JuiceInc = output-input
= 40,000-25,000=15,000
GDP = 35,000+15,000 = 50,000
Expenditure approach
• Total spending on final goods
• GDP= consumption+investment+govt. purchases+
net exports
• Consumption is spending by domestic household on
final goods
• Net exports means export minus import
EXAMPLE
consumption from OrangeInc=10,000
consumption from JuiceInc =40,000
GDP = 10,000+40,000 = 50,000
 INCOME APPROACH
It includes
 Compensation of employees
 Proprietor’s income
 Rental income
 Corporate tax
OrangeInc JuiceInc
EXAMPLE:
Compensation = 15,000+10,000= 25,000
Proprietor’s income= 15,000+ 3,000= 18,000
Tax = 5,000+ 2,000 = 7,000
GDP = 50,000.
 PROBLEMS IN
MEASURING
• Ignores the non-market economy.
• Ignores the quality of products.
• Ignores the income distribution.
• Ignores the costs of growth, pollution,
accidents, etc.
• Ignores the quality of life.
• Lack of occupational specialisation.
• Illiteracy.
• Non availability of data.
 PROBLEMS IN
MEASURING
• Counts the output of the services sector
erroneously.

• Counts the official exchange rate and thereby

often under valued.

• Unreasonable comparison of goods.

• Counts the incomes generated through non-

productive activities.
 SIGNIFICANCE
• National income data form the basis of
national policies. E.g.: Employment
policy.
• National data are of great importance in
Economic Planning.
• National income data play a vital role in
country’s per capita income, which
reflects the economic growth of the
country.
• It enables to find out the distribution in
income or disparities in the incomes of
the different sections of the society.
THANK YOU