National Income (Contd.

Methods used to measure National Income

Calculating National Income
There are various methods for calculating the national income such as
production method, income method, expenditure method etc.

Income Method:

Different factors of production are paid for their productive services rendered to
an organization. The various incomes that are included in these methods are
wages, income of self-employed, interest, profit, dividend, rents, and surplus of
public sector and net flow of income from abroad.

Expenditure Method:

The various sectors – the household sector, the government sector, the business
sector, either spend their income on consumer goods and services or they save
a part of their income. These can be categorized as private consumption
expenditure, private investment, public consumption, public investment etc. as
shown in the above table.

Product Method
The production method gives us national income or national product based
on the final value of the produce and the origin of the produce in terms of the
industry.

All producing units are classified sector wise.

• Primary sector is divided into agriculture, fisheries, and animal husbandry.

• Secondary sector consists of manufacturing.
• Tertiary sector is divided into trade, transport, communication, banking,
insurance etc
Problems on National Income-

1. With the help of following data, calculate National Income at factor cost.

GNP = 5, 00,000 Cr.

Depreciation = 50,000 Cr
Indirect taxes = 30,000 Cr.
Subsidies = 5,000 Cr.

Solution:

NI at factor cost = GNP – Depreciation – Taxes + Subsidies.

= 5, 00,000- 50,000 – 30,000+5,000
= 4, 25,000 Cr.

Calculate GNP and NNP from the following data. Net income from abroad is Rs.
1,400 Cr., GDP is Rs.20, 000 Cr., depreciation Rs.1, 000 Cr. Raw materials and
intermediate goods used in production is Rs. 4, 000 Cr.

Solution:

GNP = GDP + Net Income from abroad

= 20,000+1,400
GNP= 21,400 Cr.
NNP= GNP- Depreciation
= 21, 400 – 1,000 Cr.
NNP =20.400 Cr.

3. From the information given below calculate the personal income.

NI at factor cost = Rs.6, 560 Cr.

Corporate Income tax = Rs. 324 Cr.
Social Security Contributions =Rs. 113 Cr.
Undistributed Profits = Rs. 76 Cr.
Transfer Earnings = Rs.230 Cr.

Solution:
PI = NI- Corporate taxes- Undistributed Profits- Social Security Contributions+
Transfer Payments.
PI = 6560 – 324-76-113+230 Cr.
= 6560-513+230 Cr.
∴ PI =6277 Cr.
4. From the following data, calculate GDP at market prices.

(Rs. In crores)
Net National Income 10,500
Depreciation 650
Subsidies 250
Commodity taxes 900
Imports 1100
Exports 1300

Solution:

GDP at market prices = (NI at factor cost + Depreciation)+Taxes–

Subsidies- Net Income received from abroad
= 10,500+ 650+900-250-(1300-1100)

= Rs.11, 600 Cr.

Note: NI at factor cost + Depreciation = GNP at factor cost.

5. Calculate NI, PI and DPI from the following data:

(Rs. Crore)
Wages and salaries 8,000
Rent 1,000
Undistributed profits 500
Dividends 2,200
Social Security Contributions of
Business sectors 700
Interest Received 550
Corporate profit taxes 700
Other Incomes 800
Pensions paid by the government 150

Net interest paid by the government 200

Personal income tax 1700
Solution:

1. NI at factor cost =Wages+ Salaries +Interest Received +Rent+ Dividends

+Undistributed Profits +Social Security Contribution+ Other Incomes+
Corporate Profit taxes.
NI =8000+700+1000+2200+500+700+800+700=Rs14600Crs.

2. PI = NI-Corporate Taxes- Undistributed Profits-SSC+ Transfer Payments

=14600- 500-700+150+200=Rs.13750 Crs.

3. DPI = PI- Personal Taxes.

= 13750-1700=12050