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Problem Set 1:: (National Income Accounting)

This document provides information and formulas for calculating various national income accounting measures: - It defines key terms like net factor income from abroad and net indirect taxes. - It outlines the value added, income, and expenditure methods for calculating measures like gross domestic product, net domestic product, national income, private income, and personal income using various components. - It provides examples of problems calculating specific national income measures and walking through the steps to solve them.

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Sneha Giji Saji
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70 views12 pages

Problem Set 1:: (National Income Accounting)

This document provides information and formulas for calculating various national income accounting measures: - It defines key terms like net factor income from abroad and net indirect taxes. - It outlines the value added, income, and expenditure methods for calculating measures like gross domestic product, net domestic product, national income, private income, and personal income using various components. - It provides examples of problems calculating specific national income measures and walking through the steps to solve them.

Uploaded by

Sneha Giji Saji
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Problem Set 1:

(National Income Accounting)


Formulas
• Net = Gross - (Consumption of Fixed Capital) Depreciation
• National = Domestic + Net factor income from abroad
• Market Prices = Factor Cost + Net Indirect Taxes
• Net factor income from abroad = Factor Income received from
Abroad - Factor Income paid to Abroad
• Net Indirect Taxes = Indirect Taxes - Subsidies
Formulas
• National Income = NNPFC
• Domestic Income = NDPFC
• Private Income = National Income – Income from domestic
Product accruing to government sector + All current transfer
payments
• Personal Income = Private Income – Corporation Tax –
Undistributed Profits
• Personal Disposable Income = Personal Income – Personal
direct tax – miscellaneous receipt from the government
Value Added Method
• Step 1- Classification of enterprises into primary,
secondary and tertiary sectors
• Step 2- Calculation of NVAFC (Domestic Income)
• GVAMP = Gross value of output – Intermediate Consumption
• NVAFC = GVAMP – Depreciation – NIT
• Step 3- Calculation of NFIA
• Step 4- Calculation of National Income
• NI = DI + NFIA
Income Method
• Step 1- Classification of enterprises into primary, secondary and tertiary
sectors
• Step 2- Classification of Factor Income
• 1. Compensation of Employees
• 2. Operating Surplus = (Rent + Interest + Profit + Royalty)
• Profit = Dividend + Corporation Tax + Undistributed Profits/Savings of Private
corporate sector/ Retained earnings
• 3. Mixed Income
• Step 3- Classification of Domestic Income
• Domestic Income = Compensation of Employees + Operating Surplus + Mixed Income
• Step 4- Calculation of National Income
• NI = DI + NFIA
Expenditure Method
• Step 1-
• GDPMP = Private final consumption expenditure + Government final
consumption expenditure + Gross domestic capital formation + Net exports
• Gross domestic capital formation = Gross domestic fixed capital formation +
Change in stock
• Net export = Exports - Imports
• Step 2- Classification of Domestic Income
• NDPFC = GDPMP – Depreciation - NIT
• Step 3- Calculation of National Income
• NI = DI + NFIA
Problem 1:
Investment expenditure 250
Wages and salaries 320
Consumption expenditure 560
Interest and investment Income 110
Business profits 125
Depreciation 175
Indirect taxes less subsidies 100
Net exports -50
Government Purchases 200
•Estimate GDP at market prices
•Calculate Net Domestic Product at factor cost
Solution
• (a) GDP at market Prices = C + I + G + NX
= 560 + 250 + 200 -50
= 960
• (b) NDP at factor cost = GDP at market Prices- Depreciation -
NIT
= 960 – 175 - 100
= 685
Problem 2:
Net national product at market price 1500

Net factor income from abroad -30

Gross national product at factor cost 1400

Consumption of fixed capital 150

National debt interest 20

•Net Indirect taxes


•Net domestic product at factor cost
Solution
• (a) NNPMP = GNPFC + NIT – Consumption of fixed capital
• 1500= 1400 + NIT – 150
• 1500 – 1400 + 150 = NIT
• 250 = NIT
• (b) NDPFC = NNPMP – NIT – NFIA
• = 1500 – 250 – (-30)
• = 1280
Problem 3:
Contents Rs. (in Crores)
Net current transfers from rest of the world 10
Private final consumption expenditure 600
National Debt Interest 15
Net Exports (-) 20
Current Transfers from government 5
Net domestic product at factor cost accruing to govt. 25
Government final consumption expenditure 100
Net Indirect tax 30
Net Domestic Capital Formation 70
Net Factor Income from Abroad 10
(a) National Income
(b) Private Income
Solution
•(a) National Income (NNPFC) = (Private final consumption expenditure + Government final
consumption expenditure + Net Domestic Capital Formation + Net Factor Income from Abroad - Net
Indirect tax
= 600 + 100 + 70 + (-20) + 10 – 30
= 780 – (50)
= 730
•(b) Private Income = NNPFC - Net domestic product at factor cost accruing to govt + Transfer
Payments + National Debt Interest
= 730 - 25 + (10 + 5) + 15
= 760 – 25
= 735

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