Some challenging Numerical on National Income

Private Income,Personal Income and PDI

National Income Accounting-3 - Value Added Method /GNDI/NNDI

National Income Accounting-1- Income Method

National Income Accounting-2- Expenditure Method

Domestic Income and National Income

By Watching this video you will be able to determine what should be included in Domestic Income and and what should be included in National Income.

Concept of Private Income, Personal Income and Personal Disposable Income.

The first requirement to understand this concept isto know how Net Domestic Product is Divided between Private sector and Government.

NDPfc can be divided in to two parts :- Part of NDPfc accruing to Private sector and Part of NDPfc accruing to Government Sector.

NDPfc = Part of NDPfc accruing to Private sector + Part of NDPfc accruing to Government Sector.


Part of NDPfc accruing to Government Sector = Savings of Non Departmental enterprises + Income of Government from Property and Entrepreneurship





Part of NDPfc accruing to Private sector = NDPfc - Part of NDPfc accruing to Government Sector.

Part of NDPfc accruing to Private sector = NDPfc – (Savings of Non Departmental enterprises + Income of government from Property and Entrepreneurship)




After getting through this concept now private Income can be calculated easily.




In order to determine Private Income you need to remember



Private Income= Part of NDPfc accruing to private sector +  Net factor Income from Abroad + Current Transfer from Government  + Net Current Transfer from Rest of World + Interest on Public Debt



Private Income= (NDPfc - Part of NDPfc accruing to Government) +  Net factor Income from Abroad + Current Transfer from Government  + Net Current Transfer from Rest of World + Interest on Public Debt





Private Income= NDPfc – (Savings of Non Departmental enterprises + Income of  government from Property and Entrepreneurship) +  Net factor Income from Abroad + Current Transfer from Government  + Net Current Transfer from Rest of World + Interest on Public Debt



This way private Income can be determined depending on the requirement of the situation.


·        Interest on public debt may be given as Interest on National Debt or Public debt Interest or National Debt Interest.

Now to determine Personal Income.

Personal Income = Private Income – Corporation Tax – Undistributed Profits
Undistributed Profits may be given as Net retained earnings of private sector enterprises or savings of private sector enterprises or corporate savings


Personal disposable Income = Personal Income- Direct tax paid by households – Miscellaneous receipts of Government administrative undertakings




Direct tax paid by household may be given as personal direct tax.

Gross National Disposable Income GNDI & NNDI

GNDI = GNPmp + Net Current Transfer from Rest of The World
GNDI = GNPmp + NCTrow

The GNPmp can be determined with the help of Given data and then by putting in the formula we will be able to determine Gross National Disposable Income.
 If NDPfc is given
then
GNPmp = NDPfc + Depriciation +NFIFA + NIT


 If GDPfc is given
GNPmp = GDPfc + NFIFA + NIT


So
NNDI = NNPmp + NCT row

How to get edge in National Income Accounting (2)

How to determine National Income by Value Added Method


The first step is to determine Gross Value added at market Price.


GVAmp =Value of Output - Intermediate Consumption


Value of Output = Sales + Change In stock


Intermediate Consumption = Purchase of Raw material.


So


GVAmp =Sales + Change in Stock-Intermediate Consumption


Few things to remember -:


Sales = Domestic Sales+ Exports


Purchase of Raw material = Domestic Purchase + Imports


If Sales is given then no need to add exports as sales include Exports.

or the Expanded Farmula may be


GVAmp =Sales + Change in Stock-Intermediate Consumption


GVAmp = ( Domestic Sales + Exports) + Change in Stock-Intermediate Consumption


GVAmp = [( Domestic Sales + Exports) + Change in Stock] -(domestic purchase of raw material + Imports)
   Purchase of machinery  is not considered as intermediate consumption as it is not for resale.



If GVAmp of all the firms is determined in the economy it becomes GDPmp



NNPfc = GDPmp - Depriciation + NFIFA  - NIT

How to get edge in National Income Accounting

This Chapter on National Income Accounting needs memory skills,Understanding and application skills.All the three approaches are required to make NIA a cake walk.
Before starting you must know a bit about Factor Income,Transfer Income,Final Goods,Intermediate Goods etc.
First thing is to learn all the methods.This require cramming of farmules.This can be done by Practice.
Some Golden Rules-:
MP=FC+NIT                                                           :NIT=INDIRECT TAX-SUBSIDIES
FC=MP-NIT

GROSS=NET+DEPRECIATION                           :DEP=CONSUMPTION OF FIXED CAPITAL
NET=GROSS-DEPRECIATION

NATIONAL=DOMESTIC+NFIFA                           :NFIFA=FIFA-FITA
DOMESTIC=NATIONAL-NFIFA

So GNPmp=NDPfc+Dep+NFIFA+NIT
or

NDPfc=GNPmp-Dep-NFIFA-NIT
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After remembering above rules now various methods of estimating National Income.

Income method-:The first step is to determine NDPfc
NDPfc=Compensation of employees + operating surplus + mixed Income

Compensation of employees=Wages and salaries + Employers contribution to social security
Operating surplus=Rent + interest + Profits + Royalty(if given)

After determining NDPfc determine NNPfc

NNPfc=NDPfc+NFIFA

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Expenditure Method
The first step is to determine GDPmp


GDPmp=Private final consumption expenditure + Government final consumption expenditure + Gross domestic capital Formation + Net Exports
Gross Domestic Capital formation may not be given directly then you have to make it.

If NDCF is given use given below method

GDCF=Net domestic capital formation + Depreciation


If ND Fixed CF is given use given below method

GDCF=Net domestic fixed capital formation + Depreciation + Change in stock

 If GD Fixed CF is given use given below method

GDCF=Gross domestic fixed capital formation + Change in stock

or

GDCF=Gross business fixed Investment + Gross residential construction + Gross Public Investment + Change in stock

Net exports=Exports - Imports


So after determining GDPmp


NNPfc=GDPmp - Dep + NFIFA - NIT