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An assignment
On
SUBMITTED BY:
SUBMITTED TO:
Md. Sujahangir Kabir Sarker DIBAKAR CHANDRA DAS
Roll no: 019
Lecturer, Department of Agricultural Registration no: 01881,
Economics and Sociology, Faculty of Level-I, Semester-II,
Business Administration and Management, Faculty of Business Administration and
Patuakhali Science and Technology Management, Patuakhali Science and
University.Dumki-8602 Technology University.Dumki-8602
SUBMISSION DATE:05/01/2010
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CONTENTS
7 Difficulties/Limitations in 10
calculating National Income
8 Importance of calculating 11
National Income
9 Conclusion 11
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1. Definitions of National Income
National income is a measure of the total value of the goods and services (output) produced
by an economy over a period of time (normally a year). It is also a measure of the income
flown from production, and/or the sum total of all the spending involved for the production of
output. The following are some of the notable definitions.
Alfred Marshal:
The labour and capital of the country acting on its natural resources produce annually a
certain net aggregate of commodities, material and immaterial, including services of all
kinds This is the net annual income or revenue of the country, or the national dividend.
Irving Fisher:
The national dividend or income consists solely of services as received by ultimate
consumers, whether from their material or from their human environment.
National Income Committee of India: National income estimate measures the volume of
commodities and services turned out during a given period counted without duplication.
Paul A. Samuelson:
Gross national product (GNP) is the most comprehensive measure of a nations total output
of goods and services. It is the sum of the dollar (money) value of consumption, gross
investment, government purchase of goods and services and net exports.
Though there are some variations among these definitions, the basic idea is very clear
national income is simply the income of the whole nation. The basic concepts will help to
understand it more precisely.
Thus, GDP measures income from where it is earned rather than who owns the factors of
production.
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Net National Product
Net National Product (NNP) is arrived at by making some adjustment, with regard to
depreciation, in GNP. As noted above, GNP is the total value of output produced and income
received in a year by domestic residents of a country. Over this one year period, the available
plant and machinery (capital) will wear and tear and get condemned. Such decline in the
capital assets due to wear and tear is measured as capital depreciation.
NNP is arrived at by deducting value of such depreciation from GNP. That is
PCI is arrived at by dividing the GDP by the size of population. It is also arrived by making
some adjustment with GDP.
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3. Methods of Calculating National Income
In the output or product method, the measures of national income are calculated by adding
the total value of the output (of goods and services) produced by all activities during any time
period, such as a year.
GNI = Money value of total goods and services + Income from abroad.
b) Income Method
In the income method, the measures of national income are calculated by adding income of
all individuals in a nations territory.
This method will help us to know the contributions made by different agents like landlords,
labour, capitalists and organizers to national income.
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c) Expenditure Method
In the expenditure method, the national income is calculated by adding all expenditures and
investment expenditure made by individual as well as the govt. of a country during a given
year.
The sum of all these aggregate expenditure provides us the measure of national income.
.
GDP is the measure of an economys total output. It is also used as a measure of total income
and total expenditure in that economy. It is clear that incomes received by the public are
being spent to buy the output of goods and services produced.
Hence, income is equal to expenditure and expenditure is equal to the value of output
produced in the economy.
However, after aggregating the total income components of the economy will be equivalent
to the total expenditure or total output. Therefore, all the three methods are supposed to give
same results.
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expenditure income
output
Figure:1
Expenditure flow
Capital market
saving Investment
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Income flow
Expenditure flow
saving
Deficit financing
Tax
Govt
Purchase of goods
Transfer payment
Expenditure flow
saving
Deficit financing
Tax
Govt
Purchase of goods
Transfer payment
Import Export
International trade
Expenditure flow Income flow
Import
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Sectors Contributions in the economy(in
percentage)
2. Fisheries
4. Industry
5. Electricity
6. Construction
9. Transport and
communication
10. Financial
intermediaries
11. Real estate and other
business
12. Public administration
and defense
13. Education
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6. Growth Trend of GDP in Bangladesh
Growth trend of GDP shows that there is the sign of economic development in Bangladesh.
Whether this trend is slow or fast, can be realized by analyzing the growth rates of Real GDP
and Real Per Capita Income assorted in different years in the following table
Table- 1: Growth Trend of Real Gross Domestic Product (GDP) in Bangladesh during 1975-
2000 (at 1984/85 prices)
We have already seen that calculation of national income is a difficult process. Let us
examine these difficulties.
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8. Importance of calculating National Income
Various utilities of the national income estimates can be described as below:
1 National income estimates help us to know this performance of an economy during one
year and over a period of years.
2 National income estimates also tell us about the economic welfare enjoyed by the people.
We can know the per capital income by dividing national income by population.
3 on the basis of national income estimate comparison between various economics of the
world may be made. National income figures for various countries provides us the rates of
growth in different economies.
4 In an economy, inter-sector comparison can be made with the help of national income
statistics
5 national income figures are inevitable for an economy, which wants to develop with the
help of economic planning.
7 National income estimated over period of years enable us evaluate the planning.
8National income estimated is also important in the formation of the budget by the
finance Minister of the country.
9 National income estimates are also important because they indicate how the income or
wealth is distributed among the various classes. Thus we can know whether the national
income is equally distributed or not.
9. Conclusion
A variety of measures of national income and output are used in economic to estimate total
economic activity in a country or region, including gross domestic product (GDP), gross
national product (GNP) and Net National income (NNI). All are concerned with counting the
total amount of goods and services produced within some "boundary". The boundary may be
defined geographically, or by citizenship; and limits on the type of activity also form part of
the conceptual boundary; for instance, these measures are for the most part limited to
counting goods and services that are exchanged for money: production not for sale but for
barter, for one's own personal use, or for one's family, is largely left out of these measures,
although some attempts are made to include some of those kinds of production by imputing
monetary values to them.
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