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Concepts of National Income

1) National Income is the income of a country.

2) It is the aggregate of the incomes earned by the individuals in a country + income of NRI's.

3) It is value of goods and services produced in a country during a year.

4) It is taken as indicator of high level of economic activity. ie: If people earns more income then it indicates better standard of living.

5) For first time in India, National Income was estimated by Dadabai Nourozi in 1868.

6) In 1931-32, V.K.R.V Rao estimated Scientific classifications.

7) In India, National Income estimates are related with the financial year 1st April to 31st March.

8) GNP - Gross National Product
  • GNP refers to the money value of total output or production of final goods and services produced by the country during a given period of a year.
  • Forumale for GNP = GDP + X - M ,
  • where GDP is Gross Domestic Product, x is export, M is Import.
  • The condition for closed economy is X=M, then GNP = GDP.
9) GDP - Gross Domestic Product
  • GDP is total money value of all final goods and services produced within the geographical boundaries of the country during a given year.
  • GDP = GNP - (X-M)
10) NNP - Net National Product
  • NNP is obtained by subtracting the Depreciation value from GNP.
  • NNP = GNP - Depreciation
11) National Income (NI): National Income is calculated by subtracting the Net indirect taxes from NNP at market price.

12) NNP at market prices = Gross National Product + Duties – Depreciation

13) NNP at factor cost = NNP at market prices – (indirect taxes + subsidies)

14) Per Capita Income = (NI at constant prices)/ Population

15) Central Statistical Organization (CSO) - The organization performs significant operations like conduction of Economic Censuses, Compilation of Human Development Statistics, Consumer Price Indices for Urban Non-Manual Employees, Development of Statistics in the states and so on.

Factors Affecting National Income
  • Factors of Production
  • Technology
  • Government
  • Political Stability
1. Factors of Production
Normally the more efficient and richer the resources, the higher the level of national incomeor GNP will be.

Resources like coal, iron & timber are essential for heavy industries so that they must be available and accessible. In other words, the geographical location of these natural resources affect the level of GNP.

Capital is greatly determined by investment. Investment in turn depends on other factors like profitability, political stability etc.

Labour & Entrepreneur
The quality or productivity of human resources is more important than quantity.
Manpower planning and education affect the productivity and production capacity of an economy.

2. Technology
This factor is more important for nations with little natural resources. The development in technology is affected by the level of invention and innovation on production.

3. Government
Government can help to provide a favourable business environment for investment. It provides laws and order, regulations that affect exchanges. In HK, the government promotes free trade and competition which encourage economic activities.

4. Political Stability
A stable economic and political system helps the allocation of resources. Wars, strikes and social unrests will discourage investment and business activities.



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