It may last longer or for a shorter period. In other words, the total income earned is fully spent on different types of goods and services. If each time, this wheat or its flour is taken into consideration, it will work out to Rs. The table summarizes national income on the left debit, revenue side and national product on the right credit, expense side of a two-column accounting report. For years the Government is generating revenue through this tax system.
Adoption of this approach makes objective measurement of income through goods and services much more specific and meaningful than that through the flow of subjective satisfaction. Again, it often happens that the cost of production of a commodity to the producer is higher than a price of a similar commodity in the market. Note that all three counting methods should in theory give the same final figure. National income accounts of the U. So there are three measures of national income of a country.
Aggregate demand schedule is drawn by adding C and I schedules. The third is from the stand point of aggregate sales minus the costs of production. These days the national income data are regarded as accounts of the economy, which are known as social accounts. And all the known illustrations given by Pigou about the maid servant marrying her master and continuing the same services, since her services will no longer be paid, they become excluded from the national dividend of the country. When the price level rises, the national income also rises, though the national production might have fallen. This avoids an issue often called '', wherein the total value of a good is included several times in national output, by counting it repeatedly in several stages of production. For this purpose the following formula is employed.
Two things must be noted in this concept. This is acceptable to economists, because, like income, the total value of all goods is equal to the total amount of money spent on goods. All these resources are termed as leakages in the flow of consumption, which adversely affect the rate of multiplier. The aggregate demand and aggregate supply intersect each other at point E, which is termed as equilibrium point. So, to avoid duplication, the value of intermediate products used in manufacturing final products must be subtracted from the value of total output of each industry in the economy. To avoid double counting, therefore, only the final products and not the intermediary goods should be taken into account. Inter-Relationship among different concept of National Income The inter-relationship among the various concept of national income can be shown in the form of equations as under:.
For instance, pensions and unemployment allowances are paid to individuals by the government without doing any productive work during the year. National income only includes the market value of all final goods and ignores intermediate goods as intermediate goods can further be used to produce final goods. The whole of the personal income cannot be spent on consumption, because it is the income that accrues before direct taxes have actually been paid. So the study of national income accounting is very important. The capital goods like machinery, will wear out or fall in value as a result of its consumption or use in production process.
Capital is used up in production but it does not vanish. There is no other way of adding up. The current global financial crisis has its roots embedded in the collapse of the subprime markets in the United States. But revenue from these goes to the government treasury and not to the factors of production. So price changes do not adequately measure national income. Thus, a Piano or an overcoat made for me this year is not a part of this years income but an addition to capital. How to profit from the global crisis and make big bucks big time! Disposable income can be either consumed or saved.
The nominal value of national income, or any other aggregate, is the value of national output at the prices existing in the year that national income is measured - that is, at current prices. Typically, goods are produced in a number of 'stages', where raw materials are converted by firms at one stage, then sold to firms at the next stage. It comprises consumer goods as well as producer goods. Aggregate effective demand refers to the aggregate expenditure of an economy in a specific time frame. The more that workers are needed the higher the wage rate.
When a teacher teaches his own children, his work is also not included in national income. But the process of production uses up a certain amount of fixed capital. In such a case, the production by businesses is less than the demand of households. Three approaches are employed for this purpose. For example, in the two-sector economy, the government is not involved in activities, such as taxation, expenditure, and consumption. It is also the market value of these domestic-based factors adjusted for indirect business taxes and subsidies entering into production of final goods and services. First, in the light of the definition put forth by Pigou, we have to unnecessarily differentiate between commodities which can and which cannot be exchanged for money.
I like to pay taxes. The difference between national income at factor cost and nation income at market price arises from the fact that indirect taxes and subsidies cause market prices of output to be different from the factor incomes resulting from it. Durable goods are expected to last more than a year furniture, appliances, cars, etc. Personal income differs from private income in that it is less than the latter because it excludes undistributed corporate profits. The difficulties might be aggravated by the durable goods for which the measurement of the spread of satisfaction over time cannot be easily determined. In their case, it is very difficult to find out the different inputs provided by the owner himself.
Gross national product is defined as the total market value of all final goods and services produced in a year in a country. The global welfare too is linked to progress in India as reflected in the keen global interest in India. In other words, the profit earned by an organization is completely distributed in the form of dividends among shareholders. Combined with data, national income accounts can provide a measure of well-being through per capita income and its growth over time. The concepts of National Income and Product are most significant in macro accounting. This consumption of fixed capital or fall in the value of fixed capital due to wear and tear is called depreciation.