{"id":16255,"date":"2023-03-18T17:43:56","date_gmt":"2023-03-18T12:13:56","guid":{"rendered":"https:\/\/gstguntur.com\/?p=16255"},"modified":"2023-03-18T17:43:56","modified_gmt":"2023-03-18T12:13:56","slug":"determination-of-national-income-notes-ca-inter-economics-notes","status":"publish","type":"post","link":"https:\/\/gstguntur.com\/determination-of-national-income-notes-ca-inter-economics-notes\/","title":{"rendered":"Determination of National Income Notes \u2013 CA Inter Economics Notes"},"content":{"rendered":"<p>Determination of National Income Notes \u2013 <a href=\"https:\/\/gstguntur.com\/ca-inter-economics-notes\/\">CA Inter Economics Notes<\/a>\u00a0is designed strictly as per the latest syllabus and exam pattern.<\/p>\n<h2>Determination of National Income Notes \u2013 CA Inter ECO Notes<\/h2>\n<p>1. Meaning of National Income:<\/p>\n<ul>\n<li>National Income Accounting, pioneered by the Nobel prize-winning economists Simon Kuznets and Richard Stone, is one such measure.<\/li>\n<li>National Income is defined as the net value of all economic goods and services produced within the domestic territory of a country in an ac-counting year plus the net factor income from abroad.<\/li>\n<\/ul>\n<p>2. Usefulness and Significance of National Income Estimates:<\/p>\n<ul>\n<li>Framework for analyzing and evaluating the short-run performance of an economy<\/li>\n<li>Pattern of demand for goods and services<\/li>\n<li>Economic welfare<\/li>\n<li>Quantitative basis for assessing and choosing economic policies<\/li>\n<li>Throw light on income distribution<\/li>\n<li>Assist in determining eligibility for loans etc.<\/li>\n<li>A guide to make policies for growth and inflation<\/li>\n<li>Forecasting about the future development trends of the economy<\/li>\n<\/ul>\n<p><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/gstguntur.com\/wp-content\/uploads\/2021\/10\/GST-Guntur.png\" alt=\"Determination of National Income Notes \u2013 CA Inter Economics Notes\" width=\"123\" height=\"13\" \/><\/p>\n<p>3. Different Concepts of National Income:<br \/>\nMarket Price = Factor Cost + Net Indirect Taxes = Factor Cost + Indirect Taxes &#8211; Subsidies<br \/>\nFactor Cost = Market Price &#8211; Net Indirect Taxes = Market Price &#8211; Indirect Taxes + Subsidies<br \/>\nNet Indirect Taxes = Indirect Taxes &#8211; Subsidies<br \/>\nGross = Net + Depreciation<br \/>\nNet = Gross &#8211; Depreciation<br \/>\nGDP<sub>MP<\/sub> = Value of Output in the Domestic Territory &#8211; Value of Intermediate Consumption<br \/>\nOr<br \/>\nGDP<sub>MP<\/sub> = \u03a3 Value Added<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-17518\" src=\"https:\/\/gstguntur.com\/wp-content\/uploads\/2023\/03\/Determination-of-National-Income-Notes-\u2013-CA-Inter-Economics-Notes-1.png\" alt=\"Determination of National Income Notes \u2013 CA Inter Economics Notes 1\" width=\"610\" height=\"282\" srcset=\"https:\/\/gstguntur.com\/wp-content\/uploads\/2023\/03\/Determination-of-National-Income-Notes-\u2013-CA-Inter-Economics-Notes-1.png 610w, https:\/\/gstguntur.com\/wp-content\/uploads\/2023\/03\/Determination-of-National-Income-Notes-\u2013-CA-Inter-Economics-Notes-1-300x139.png 300w\" sizes=\"(max-width: 610px) 100vw, 610px\" \/><\/p>\n<ul>\n<li>The basis of distinction between \u2018gross&#8217;and \u2018net\u2019is depreciation or con-sumption of fixed capital.<\/li>\n<li>If NFIA is positive, then National Income will be greater than domestic factor incomes.<\/li>\n<\/ul>\n<p>4. Few Important Points While Learning About National Income:<\/p>\n<ul>\n<li>The value of only final goods and services or only the value added is considered.<\/li>\n<li>\u2018Value Added\u2019 means the difference between value of output and pur-chase of intermediate goods.<\/li>\n<li>Consumption of fixed assets is ignored.<\/li>\n<li>Production of agriculture, forestry and fishing which are used for own consumption of producers is also included.<\/li>\n<li>Economic activities, include all human activities which create goods and services that are exchanged in a market and valued at market price.<\/li>\n<li>Non-economic activities are not considered e.g. hobbies, housekeeping and child-rearing services of home makers and services of family members that are done out of love and affection.<\/li>\n<li>National income is a \u2018flow\u2019 measure of output per time period (like 1 year).<\/li>\n<li>The net change in inventories may be positive or negative.<\/li>\n<\/ul>\n<p>5. Nominal GDP VS Real GDP (GDP at Current and Constant Prices):<\/p>\n<ul>\n<li>GDP in terms of current market prices, termed \u2018nominal GDP\u2019 or \u2018GDP at current prices\u2019,<\/li>\n<li>&#8216;Real GDP\u2019 or \u2018GDP at constant prices\u2019 which is the value of domestic product in terms of constant prices<\/li>\n<\/ul>\n<p><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/gstguntur.com\/wp-content\/uploads\/2021\/10\/GST-Guntur.png\" alt=\"Determination of National Income Notes \u2013 CA Inter Economics Notes\" width=\"123\" height=\"13\" \/><\/p>\n<p>6. Per Capita Income:<br \/>\nGDP<sub>FC<\/sub> per capita = GDP<sub>FC<\/sub> \u00f7 Population<\/p>\n<p>7. Personal Income (PI):<\/p>\n<p>PI = NI + Income received but not earned &#8211; Income earned but not received<\/p>\n<p>PI = NI &#8211; Undistributed profits &#8211; Net interest payments made by households &#8211; Corporate Tax + Transfer Payments to the households from firms and Government<\/p>\n<p>PI = Factor income from net domestic product accruing to the private sector + Net factor income from abroad + National debt interest + Current transfers from government + Other net transfers from the rest of the world &#8211; Undistributed profits &#8211; Corporate Tax<\/p>\n<p>8. Disposable Personal Income (DI):<br \/>\nDI = PI &#8211; Personal Income Taxes &#8211; Non-tax payments<br \/>\nTwo more concepts need to be understood, namely:<\/p>\n<p>(a) Net National Disposable Income (NNDI)<\/p>\n<p>NNDI = Net National Income + Other net current transfers from the rest of the world (Receipts less payments)<br \/>\n= NNI + Net taxes on income and wealth receivable from abroad + Net social contributions and benefits receivable from abroad.<\/p>\n<p>(b) Gross National Disposable Income (GNDI)<\/p>\n<p>GNDI = NNDI + CFC (Consumption of fixed capital)<br \/>\n= GNI + Other net current transfers from the rest of the world (Receipts less payments) (Other Current Transfers refer to current transfers other than the primary incomes)<\/p>\n<p>9. Categories of Domestic Income:<\/p>\n<ul>\n<li>Income from domestic product accruing to the public sector which includes income from property and entrepreneurship accruing to gov-ernment administrative departments and savings of non-departmental enterprises.<\/li>\n<li>Income from domestic product accruing to private sector = NDPFC &#8211; Income from property and entrepreneurship accruing to government administrative departments &#8211; Savings of non-departmental enterprises.<\/li>\n<\/ul>\n<p>10. Private Income:<br \/>\nPrivate Income = Factor income from net domestic product accruing to the private sector + Net factor income from abroad + National debt interest + Current transfers from government + Other net transfers from the rest of the world.<\/p>\n<p>Private Income = Personal Income + Undistributed Profit + Corporate tax<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/gstguntur.com\/wp-content\/uploads\/2021\/10\/GST-Guntur.png\" alt=\"Determination of National Income Notes \u2013 CA Inter Economics Notes\" width=\"123\" height=\"13\" \/><\/p>\n<p>11. There are many reasons to dispute the validity of GDP as a perfect measure of well being:<\/p>\n<ul>\n<li>Income distributions and, therefore, GDP per capita is a completely inadequate measure of welfare.<\/li>\n<li>Quality improvements in systems and processes are ignored.<\/li>\n<li>Productions hidden from government authorities.<\/li>\n<li>Non-market production and Non-economic contributors to well-being.<\/li>\n<li>The disutility of loss of leisure time.<\/li>\n<li>Economic \u2018bads\u2019.<\/li>\n<li>The volunteer work and services rendered without remuneration.<\/li>\n<li>Many things such as, leisure time, fairness, gender equality, security of community feeling etc.<\/li>\n<li>Both positive and negative externalities.<\/li>\n<li>The distinction between production that makes us better off and pro-duction that only prevents us from becoming worse off.<\/li>\n<\/ul>\n<p>12. The Circular Flow of Income:<br \/>\n<img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-17519\" src=\"https:\/\/gstguntur.com\/wp-content\/uploads\/2023\/03\/Determination-of-National-Income-Notes-\u2013-CA-Inter-Economics-Notes-2.png\" alt=\"Determination of National Income Notes \u2013 CA Inter Economics Notes 2\" width=\"299\" height=\"285\" \/><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/gstguntur.com\/wp-content\/uploads\/2021\/10\/GST-Guntur.png\" alt=\"Determination of National Income Notes \u2013 CA Inter Economics Notes\" width=\"123\" height=\"13\" \/><\/p>\n<p>13. Value Added Method or Product Method or Industrial Origin Method or Net Output Method:<\/p>\n<p>Step 1: All the producing enterprises are broadly classified into three main sectors namely:<\/p>\n<p>(a) Primary sector,<br \/>\n(b) Secondary sector, and<br \/>\n(c) Tertiary sector or service sector<\/p>\n<p>Step 2: Estimating the gross value added (GVA<sub>MP<\/sub>) by each producing enterprise:<br \/>\nGDP\/GVA<sub>MP<\/sub> = Value of output &#8211; Intermediate consumption<br \/>\n= (Sales + change in stock) &#8211; Intermediate consumption<\/p>\n<p>Step 3: Estimation of National income for each individual unit and then Na-tional Income:<br \/>\nNDP\/NVA<sub>MP<\/sub> = (GVA<sub>MP<\/sub>) &#8211; Depreciation<br \/>\nNDP\/NVA<sub>FC<\/sub> = NVA<sub>MP<\/sub> &#8211; Net Indirect taxes<br \/>\nNI\/NNP<sub>FC<\/sub> = NVA<sub>FC<\/sub> + NFIA<\/p>\n<p>14. Income Method or Factor Payment Method or Distributed Share Method:<br \/>\nNational income is calculated by summation of factor incomes paid out by all production units within the domestic territory of a country as wages and salaries, rent, interest, and profit. By definition, it includes factor payments to both residents and non- residents.<\/p>\n<p>NDP<sub>FC<\/sub> = Sum of factor incomes paid out by all production units within the domestic territory of a country<br \/>\nNNP<sub>FC<\/sub>\/NI = Compensation of employees + Operating Surplus (rent + interest + profit) + Mixed Income of Self- employed + NFIA<\/p>\n<p>15. Expenditure Method:<br \/>\nUnder this method, National income is calculated by summation of following items:<\/p>\n<p>1. Final Consumption Expenditure:<br \/>\n(a) Private Final Consumption Expenditure (PFCE)<br \/>\n(b) Government Final Consumption Expenditure<br \/>\n2. Gross Domestic Capital formation<br \/>\n3. Net Exports<\/p>\n<p>GDP<sub>MP<\/sub> = Final consumption expenditure + Gross domestic capital formation + Net Expon<br \/>\nGNP<sub>MP<\/sub> = GDP<sub>MP<\/sub> + NFIA<br \/>\nGNP<sub>FC<\/sub> = GNPMP &#8211; Net indirect taxes<br \/>\nNNP<sub>FC<\/sub> or NI = GNP<sub>FC<\/sub> &#8211; Depreciation<\/p>\n<p>16. National Income as per Keynes:<br \/>\nA comprehensive theory of National Income was first put forward by the British economist John Maynard Keynes in his masterpiece \u2018The General Theory of Employment Interest and Money&#8217; published in 1936.<\/p>\n<p>The Keynesian theory of income determination is presented in three models:<\/p>\n<ul>\n<li>The two-sector model consisting of the household and the business sectors,<\/li>\n<li>The three-sector model consisting of household, business and government sectors, and<\/li>\n<li>The four-sector model consisting of household, business, government and foreign sectors.<\/li>\n<\/ul>\n<p><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/gstguntur.com\/wp-content\/uploads\/2021\/10\/GST-Guntur.png\" alt=\"Determination of National Income Notes \u2013 CA Inter Economics Notes\" width=\"123\" height=\"13\" \/><\/p>\n<p>17. The Simple Two Sector Economy Model Assumes:<\/p>\n<ul>\n<li>Only two sectors in the economy viz., households and firms,<\/li>\n<li>Only consumption and investment outlays,<\/li>\n<li>Households own all factors of production,<\/li>\n<li>They sell their factor services to earn factor incomes,<\/li>\n<li>They do not save,<\/li>\n<li>No corporations, corporate savings or retained earnings,<\/li>\n<li>Y = Y<sub>d<\/sub><\/li>\n<li>No government, no taxes, no government expenditure or transfer payments,<\/li>\n<li>The economy is a closed economy, i.e., foreign trade does not exist.<br \/>\nFactor Payments = Household Income = Household Expenditure = Total Receipts of Firms = Value of Output<\/li>\n<\/ul>\n<p>18. The Aggregate Demand Function (AD): Two-Sector Model:<\/p>\n<p>Aggregate demand (AD) or aggregate expenditure consists of only two components:<\/p>\n<p>(i) Aggregate demand for consumer goods (C), and<br \/>\n(ii) Aggregate demand for investment goods (I)<br \/>\nAD = C + I (constant investment)<\/p>\n<p>19. The Consumption Function (C):<br \/>\nC = f(Y)<br \/>\nAccording to Keynes:<br \/>\nC = a + bY<br \/>\nC = Aggregate consumption expenditure;<br \/>\nY = Total disposable income;<br \/>\na = Consumption at zero level of disposable income;<br \/>\nb = The slope of the function, (\u0394C\/\u0394Y)<\/p>\n<p>20. Marginal Propensity to Consume (MPC) \u2018b\u2019: MPC(b) = \u0394C \/\u0394Y<\/p>\n<p>21. Average Propensity to Consume (APC): APC = C\/Y<br \/>\n22. The Saving Function (S): S = f(Y)<br \/>\nS = Y &#8211; C<\/p>\n<p>23. The Marginal Propensity to Save (MPS): MPS(1 &#8211; b) = \u0394S\/\u0394Y<\/p>\n<ul>\n<li>MPC is always less than unity, but greater than zero, i.e., 0 &lt; b &lt; 1<\/li>\n<li>MPC + MPS = 1<\/li>\n<\/ul>\n<p>24. Average Propensity to Save (APS): APS = S\/Y<\/p>\n<p>25. Relationship Between Income and Consumption:<br \/>\n<img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-17520\" src=\"https:\/\/gstguntur.com\/wp-content\/uploads\/2023\/03\/Determination-of-National-Income-Notes-\u2013-CA-Inter-Economics-Notes-3.png\" alt=\"Determination of National Income Notes \u2013 CA Inter Economics Notes 3\" width=\"539\" height=\"223\" srcset=\"https:\/\/gstguntur.com\/wp-content\/uploads\/2023\/03\/Determination-of-National-Income-Notes-\u2013-CA-Inter-Economics-Notes-3.png 539w, https:\/\/gstguntur.com\/wp-content\/uploads\/2023\/03\/Determination-of-National-Income-Notes-\u2013-CA-Inter-Economics-Notes-3-300x124.png 300w\" sizes=\"(max-width: 539px) 100vw, 539px\" \/><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/gstguntur.com\/wp-content\/uploads\/2021\/10\/GST-Guntur.png\" alt=\"Determination of National Income Notes \u2013 CA Inter Economics Notes\" width=\"123\" height=\"13\" \/><\/p>\n<p>26. The Consumption and Saving Function:<br \/>\nSince C+ S = Y, the national income equilibrium can be written as:<br \/>\nY = C + I<br \/>\nCPS = C + I, or S = I<\/p>\n<p>27. Determination of Equilibrium Income: Three Sector Model:<br \/>\nY = C + I + G<\/p>\n<p>28. Determination of Equilibrium Income: Four Sector Model:<br \/>\nY = C + I + G + (X &#8211; M)<\/p>\n<p>29. Effects on Income when Imports are Greater than Exports: National income will decrease.<\/p>\n<p>30. The Investment Multiplier (k)<\/p>\n<p>In two sector model:<br \/>\nk = \u0394Y\/\u0394I or \u0394Y = k \u00d7 \u0394l<br \/>\n\u0394Y\/\u0394I = 1\/1-MPC = 1\/MPS<\/p>\n<p>In three sector model;<br \/>\nk = \\(\\frac{1}{1-b(1-t)}\\)<\/p>\n<p>In four sector model:<br \/>\nk = \\(\\frac{1}{1-b(1-t)+m}\\)<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Determination of National Income Notes \u2013 CA Inter Economics Notes\u00a0is designed strictly as per the latest syllabus and exam pattern. Determination of National Income Notes \u2013 CA Inter ECO Notes 1. Meaning of National Income: National Income Accounting, pioneered by the Nobel prize-winning economists Simon Kuznets and Richard Stone, is one such measure. National Income &hellip;<\/p>\n<p class=\"read-more\"> <a class=\"\" href=\"https:\/\/gstguntur.com\/determination-of-national-income-notes-ca-inter-economics-notes\/\"> <span class=\"screen-reader-text\">Determination of National Income Notes \u2013 CA Inter Economics Notes<\/span> Read More &raquo;<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"spay_email":"","footnotes":""},"categories":[167],"tags":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/posts\/16255"}],"collection":[{"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/comments?post=16255"}],"version-history":[{"count":6,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/posts\/16255\/revisions"}],"predecessor-version":[{"id":17525,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/posts\/16255\/revisions\/17525"}],"wp:attachment":[{"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/media?parent=16255"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/categories?post=16255"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/tags?post=16255"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}