Revision: National Income Eco HSC Commerce (English Medium) 12th Standard Board Exam Maharashtra State Board

• "The labour and capital of a 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 true net annual income or revenue of the country or national dividend." - Marshall
• "National income is that part of the objective income of the community, including of course income derived from abroad, which can be measured in money." - Pigou
• "The national dividend or income consists solely of services as received by ultimate consumers, whether from their material or from their human environments. Thus, a piano or an overcoat made for me this year is not a part of this year's income, but an addition to capital. Only the services rendered to me during this year by these things are income." - Fisher

• "National income estimate measures the value of commodities and services turned out during a given period, counted without duplication." - N.I.C. of India
• "National income is the sum of wages, rent, interest and profit or the sum of all goods and services produced by the economy during one income period." - Shapiro 

\[\mathrm{GDP}\equiv\sum_{i=1}^N\mathrm{GVA}_i\]

National Income (NI) using this income method is expressed as:

NI = R + W + I + P + MI + (X − M) + (R − P)

Where:

• R: Rent (including imputed rent of owner-occupied houses and income from government property)
• W: Wages and salaries (compensation of employees)
• I: Interest
• P: Profits (including distributed, undistributed, and corporate tax)
• MI: Mixed income of self-employed (where labour and capital income cannot be separated)
• X−M: Net exports (exports minus imports of goods and services)
• R−P: Net receipts from abroad (net income from abroad, such as factor income received from the rest of the world minus factor income paid abroad)

In words, national income is the sum of all domestic factor incomes plus net exports and net factor receipts from abroad.

National Income (NI) or Gross National Product at market prices can be written as:
NI = C + I + G + (X − M) + (R − P)

Where:

• C: Private Final Consumption Expenditure
• I: Private Domestic Investment Expenditure
• G: Government Final Consumption and Investment Expenditure
• $(X-M)$: Net Exports (Exports minus Imports)
• $(R-P)$: Net Receipts from abroad on account of goods and services

• Macroeconomic concept – income of the whole economy
• Includes only final goods & services
• Avoids double counting
• Takes net value (depreciation excluded)
• Includes net income from abroad
• Measured for a financial year (1 April–31 March in India)
• A flow concept (per year)
• Expressed in money terms

• Part of macroeconomics
• Shows how income, expenditure and production move in the economy
• Flow is continuous and circular
• Households provide factors of production
• Firms provide goods and services
• Income earned is spent again, creating a cycle

• Two sectors: Households & Firms
• Factor market (upper), Commodity market (lower)
• Households give factors → Firms
• Firms give goods & services → Households
• Money flow: Rent, wages, interest, profit
• Income becomes expenditure
• Flow is continuous due to unlimited wants

• Three sectors: Households, Firms & Government
• Government is added to the two sector model
• Government collects taxes from households & firms
• Government spends on public goods & services
• Income flows continuously among all three sectors

• Four sectors: Households, Firms, Government & Foreign sector
• Foreign sector is added to the three sector model
• Includes exports (X) and imports (M)
• Net exports = (X − M)
• Income flows between domestic economy and rest of the world

• Green GNP shows sustainable development & economic welfare.
• It adjusts GNP for environmental damage.
• Considers pollution and depletion of natural resources.
• Mere rise in GNP ≠ better quality of life.
• Ensures benefits for present & future generations.

• Theoretical: Transfer payments, illegal income, unpaid services, self-consumption, foreign firms’ income, government services valuation, changing prices.
• Practical: Double counting, non-monetized sector, unreliable data, depreciation, capital gains/losses, illiteracy, worker classification, inventory valuation.

• Economy: Shows total income, output, and trade.
• Policies: Basis for planning jobs, industry, and farming.
• Planning: Helps in making economic plans.
• Research: Used for economic studies.
• Living Standard: Compares wellbeing across countries/time.
• Income Distribution: Shows income inequality.