Question

In: Economics

How to measures of national income? Explain in term of macroeconomics.

How to measures of national income? Explain in term of macroeconomics.

Solutions

Expert Solution

Ans.) National income and its method of measurments :-

The total value of all goods and services created within a nation over a particular period of time, symbolizing the sum of wages, profits, rents, interests and pension payments to residents of the nation or the total amount of income amassing to a country from economic activities yearly is known as national income.

There are different methods to calculate national income are :-

1.) Gross Domestic Product (GDP)

2.) Net Domestic Product (NDP)

3.) Gross National Product (GNP)

4.) Net National Product (NNP)

i.) Gross Domestic Product(GDP) - GDP is the primary tool used by economists to measure a nation's productivity/income/expenditure. The country's overall value produced of goods and services at merket prices, excluding net income from abroad is the gross domestic product.

ii.) Net Domestic Product(NDP) - NDP equals the gross domestic product minus depreciation on a country's capital goods. It accounts for capital that has been consumed over the years in the form of housing, vehicle or machinery deterioration.

NDP = GROSS DOMESTIC PRODUCT - DEPRECIATION

iii.) Gross National Product(GNP) - It is the products and services produced in one year by labour and property supplied by the citizens of a country. The value of GNP is calculated on the basis od GDP.

GNP = GDP + INCOME FROM ABROAD - INCOME OF FOREIGNERS INSIDE THE COUNTRY

iv.) Net National Product(NNP) - The total value of goods produced and services produced in a country during one year, after depreciation of capital goods has been allowed for. Depreciation describes the devaluation of fixed capital through wear and tear associated with its use in productive activities.

NNP = GNP - DEPRECIATION

The two major things while calculating income :-

a.) Factor cost - It is the input cost that is also called production cost. It includes raw materials cost, salary of the workers, machine cost and other things.

b.) Market Cost - It includes transportation cost, indirect taxes, salary of the workers, showroom maintenance cost and some marginal amount of profit.

NNP at Factor Cost = NNP at Market Cost - Indirect taxes + Subsidies


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