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National Income
Definition: National income is defined as the total amount earned by the factors of production in the
economy during a year. N_ational inco~.:.e;:m.:.:e:::ans~t=o.:ta~l.::m:.:ar=:k~e:.:t....;;v-=al:..:uo::;e~o:..:.f-=al=l..:.fi=.m~a;;._ll;tgoo~d~s..:an~d.:.s.:.:ervt~·c~e~t
are produced annually in a country. F~ood and services are those goods and services which ar,e
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not resold to someone else. It is equal to the net national product which is given by GNP minus
depreciation j
NNP = GNP· Depreciation
There are a number of concepts pertaining to national income
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(i) GNP ( Gross National Product)
(ii) GDP ( Gross Domestic Product)
(iii) NNP (Net National Product)
(iv) NNJ at factor cost ( Net National Income at Factor Cost)
(v) Net Domestic Product at Factor Cost
(vi) Disposable Income
(vi) Real Income
GNP: 111..:. total market value of all emal goods and services produced within a given year by factors
of production owned by the country's citizens. Final good and services are those goods and services
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which are not resold to someone else. GNP includes four different types of final goods and services
(i) Consumer's
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goods and services to satisfy the +immediate wants of the people
(ii) Gross private investment
(iii) Goods are services produced by the government
(iv) Net exports of goods and services.
GOP: T~I mar~alue of al~l goods and se.,~ces produced within a period of t~
fa~oduclio~ located wit~in the country regardless who own them!.
GDP also includes four different types of final goods and services
(i) Consumer's goods and services to satisfy the immediate wants of the people
(ii) Gross private investment
(iii) Goods are services produced by the government
(iv) Net exports of goods and services.
Net National Product (NNP) = [Link]
Net Domestic Product (NDP) = GDp· Depreciation
Depreciation: The decline in the economic value of an asset that occurs within a year
Net National Product at Market Price = GNP at market price - Depreciation
Net Domestic Product at Market Price = GOP at market price - Depreciation
Reallncome: Real income is the national income expressed in terms of a general level price of a
particular year taken as base. In order to find out the real income of a country. a particular year is
taken as a base year where the general price level is neither too high nor now too low and the price
level of this year is assumed to be 100.
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/ Real Income = National Income at Current Year x Base Year Price Index
Curren Year Price Index
Nominal GDP/GNP : Nominal GDP/GNP measures the total market value of final output in a given
period at the current market prices. Thus 2017 nominal GDP means the market value of all final goods
:~~::s~:~~:~:::~~:thc CUIT,? market prices.
RealGNP ~
GDP GNP
(i) The total market value of all final goods and (i) The total market value of all final
services produced within a period of time by goods and services produced within a
factors of production located within the given year by factors of production
country regardless who own them owned by the country's citizens.
(ii) It is geographical concept (ii) It is national concept
(iii) The value of all final good and serviced (iii) The value of all final good and
produced out of the country within a year will serviced produced out of the country
not be included within n year will be included
(iv) All the final goods and serviced are (iv) All the final goods and serviced arc
produced by foreigners within the country will produced by foreigners within the
be included country will not be included
(v) GOP> GNP if the market values of all final (v) GOP < GNP if the market values of
goods and services are produced by foreigners all final goods and services are produced
in our country will be greater than the value of by foreigners in our country will be
all the final goods and services that are smaller than the value of all the final
produced by the country's citizen in abroad goods and services that are produced by
the country's citizen in abroad
Methods for Measuring GNP
Three approaches are used for measuring GNP
(i) Expenditure approach
(ii) Income approach
(iii) Value added approach to GNP
Expenditure Approach: On the basis of expenditure approach, GNP is measured as the amount
spend on all final goods and services during a given period. Thus based on expenditure approach the
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GNP is given by
G]'W = C + I + G + (EX-1M)
Where
C = personal consumption expenditure
It includes all types of personal consumption expenditure during a period by all individauls of a
country.
Expenditure on durable goods are lIike as TV, VCR, CAR, Refrigerator, Computer, etc.
Expenditure on all non-durable goods. such as cosmetics and cleaning products, food, condiments,
fuel, beer, cigarettes and tobacco, medication, office supplies, packaging and containers, paper and
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paper products, personal products, rubber, plastics, textiles, clothing, and footwear.
Expenditure on services. Services of all types are non-material goods such as those of doctors,
engineers, actors, lawyers, teachers, etc.
The characteristics common to both material and non-material goods are that they have value and
satisfy human wants.
I = Gross private domestic investment
Expenditure on house construction, factory building, all types of machinery plants, capital equipments
G = Government expenditure on goods and services
Expenditure on government employees, ARMY, Police, BGB, RAB etc.
EX-1M = Net income from abroad.
The imported goods are not produced within the country, hence cannot be included to the national
income and export goods are manufactured within the country. Therefore, the difference of value
between exports (EX) and imports (1M) whether positive or negative is included in the GNP.
Income Approach: The income approach measures the income -wages, rents, interest, dividends,
tax, net income from abroad-received by all factors of production in producing final goods and
services. According to income approach, GNP is given by
GNP = Wages and salaries + Rents + Interest + Dividends + Undistributed Corporate profit+
Mixed Income + Direct Taxes + Indirect Taxes + Depreciation + Net Income from Abroad.
(i) Wages: All forms of wages and salaries earned through productive activities by workers and
entrepreneurs.
(ii) Rents: It includes all types of rents like as, the rents of land, shops, bouse, factory etc.
(iii) Interest: It includes all types of interest received by the individuals of a country from different
sources
(iv) Dividends: It includes all types of dividends that are received by shareholders from companies
(v) Corporate Profits: The income of corporate business
(vi) Mixed Income: It includes profits of not corporate business, self-employed and partnership
(vii) Direct Tax: Tax levied on individuals, corporations, and other businesses are included in the
GNP
(viii) Indirect Tax: The government levies a number of indirect taxes like as sales tax, These taxes
are included in the price of commodities. The Goods and Services Tax (GST) is a value-added tax
levied on most goods and services sold for domestic consumption. The GST is paid by consumers,
but it is remitted to the government by the businesses selling the goods and services. In effect, GST
provides revenue for the government.
(ix) Depreciation: Depreciation of machineries, plants are other capital equipment's etc.
(I) Net Income from Abroad: Net income from abroad is the difference between the export values
of goods and services and the import values of goods and services.
Value Added Approach to GNP:
GNP is the money value of all final goods and services produced at current prices during a period of
time. This is one of the ways to avoid double counting. It is difficult to distinguish properly between
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a final product and an intermediate product. For instance raw materials, semi-finished products, fuels
and services ets are sold as inputs by one industry to the other. They may be final goods for one
industry and intermediate for others. So, it avoid duplications, the value of intermediate products used
in manufacturing intermediate products must be subtracted from the value of the value of the total
output of each industry in the economy. Thus the difference between the value of materials outputs
and inputs at each stage of production is caJled the value added. If all such differences in the economy,
we arrive at the national income by value added.
Industry Total Output Intermediate value Value added
Agriculture TVA IVA VAA = TVA-IVA
Industry TVI IVI VAl = TVI-IVI
Mining TVM IVM VAM = TVM-IVM
Fishing TVF IVF VAF = TVF-IVF
Mineral TVMI IVMI VAMI = TVMI-IVM1
Livestock TVL IVL VAL = TVL-IVL
Service TVS IVS VAS = TVS-IVS
Others TVO IVO VAO = TVO-IVO
National Income = VAA +VAI +VAM +VAF+VAMI +VAL +VAS +VAO
GDP: The total market value of all final goods and services produced within a period of time by
factors of production located within the country regardless who own them.
Industry Total Output Intermediate value Value added
Agriculture TVA IVA VAA=TVA-IVA
Industry TVI IVI VAl = TVI-IVI
Mining TVM IVM VAM = TVM-IVM
Fishing TVF IVF VAF = TVF-IVF
Mineral TVMI IVMI VAMI = TVMI-IVMI
Livestock TVL IVL VAL = TVL-IVL
Service TVS IVS VAS = TVS-IVS
Others TVO IVO VAO = TVO-IVO
GDP= VAA +VAI +VAM +VAF+VAMI +VAL+VAS +VAO
GDP = C + I +G + (EX-1M)
C = private consumption expenditure
It includes all types of personal consumption expenditure during a period by all individauls of a
country.
Expenditure on durable goods are IIike as TV, VCR, CAR, Refrigerator, Computer, etc. Expenditure
on all non-durable goods. Expenditure on services.
I = Gross private domestic investment
Expenditure on house construction, factory building, all types of machinery plants, capital equipment
G = Government expenditure on goods and services
Expenditure on government employees, ARMY, Police, BGB, RAB etc.
EX-1M = Net income from abroad.
ECONOMIC DEVELOPMENT:
There is no single satisfactory definition of economic development. Economic development usually
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I -refers to the adoption of new technologies, transition from agriculture-based to industry-based
economy, and general improvement in living standards. Generally economic development implies a
process of whereby a country's real national income increases over time and changes in the technical
and institutional arrangements by which it is produced and distributed. The following changes
accompany the growth of national product.
(i) Discovery of extra resources
(ii) Capital accumulation
(iii) Population growth
(iv) New and better techniques of production
(v) Improvement of skill labors
(vi) Institutional, organizational and cultural changes
The increase in real national product must be on sustained increased. The concept of development not
only means quantitative but it is also qualitative
INDICATORS OF DEVELOPMENT:
(1) Economic growth and transformation
(2) Employment
(3) Poverty and inequality
(4) Household and community assets
(5) Health
(6) Education
(7) Social cohesion
(8) Safety and security
(9) International
(lO)Good governance
ECONOMIC GROWTH AND TRANSFORMATION
(i) GDP growth
(ii) Real per capita GDP growth
(iii) Foreign direct investment
(iv) Gross fixed capital formation
(v) Budget deficit before borrowing
(vi) Government debt
(vii) Interest rates: real and nominal
(viii) Inflation measures: CPI and CPIX
(viii) Bond points spread
(ix) R&D expenditure
(x) Exports
EMI'LOYMENT
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1. Employment
2. Unemployment
3. Expanded public works programme (EPWP)
POVERTY AND INEQUALITY
1. Per capita income
2. Inequality measures 22
3. Poverty head count index
3. Poverty gap analysis 244
4. Social-assistance support
5. Life expectancy
6. Living standards measure
HOUSEHOLD AND COMMUNITY ASSETS
1. Dwellings
2. Water
3. Sanitation
4. Electricity
5. Land restitution
6. Land redistribution
HEALTH
1. Infant and child mortality rate
2. Severe malnutrition under five years
3. Immunization coverage
4. Maternal mortality ratio
5. HIV prevalence
6. Tuberculosis (TB)
7. Malaria
8. Dengue
EDUCATION
1. Educator - learner ratio
2. Enrolment rate
3. Junior school certificate rate pass rate
4. Secondary school certificate pass rate
5. Higher secondary school certificate pass rate
6. Matriculants with mathematics higher grade passes
7. Adult literacy rate
8. Graduating science, engineering and technical (SEn students
SOCIAL COHESION
1. Strength of civil society
2. Voter participation
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3. Voters per district
4. Women who are members oflegislative bodies
5. Confident of a happy future for all races (Hindu, Muslim, Christians, other minorities)
6. Country going in the right direction
7. Identity in the form of class
8. Pride in being South African
9. Public opinion on race relations
SAFETY AND SECURITY
1. Broad categories of crimes
2. Contact crime
3. Property crime
4. Detection rate
5. Charges referred to court
6. Conviction rate
7. Inmates
8. Road accidents and fatalities
INTERNATIONAL RELATIONS
1. Peace operations
2. Democratically elected governments in Asia
3. GOP growth in Asia
4. Tourism
5. Mission operations
6. Diplomats trained
GOOD GOVERNANCE
1. Tax returns
2. Audits
3. Corruption perceptions
4. Budget transparency
5. Public opinion on delivery of basic services
6. Red tape, business
7. Biodiversity
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