NATIONAL INCOME ANALYSIS by sanghaviharshil

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									NATIONAL INCOME ANALYSIS

         by   Sundeep
              Lavanya
              Logesh
              Mahendran
              Manivel
 National income analysis
     The national income analyses are an accounting
 framework used in measuring current economic
 activity.
     The national income analyses are based on the idea
 that the amount of economic activity that occur during
 a period of time can be measured in terms of:
1.The amount of output produced, excluding output
   used up in intermediate stages of production (product
   approach);
2. The income received by the producer of output
   (income approach);
3.The amount of spending by the ultimate purchase of
   output (expenditure approach);
                   EXAMPLE
ORANGE LTD TRANSACTION

Wage paid to orange ltd employee              Rs 15000
Taxes paid to government                        5000
Revenue received from sale of orange             35000
 orange sold to public                           10000
 orange sold to juice ltd                        25000


JUICE LTD TRANCATION

Wage paid to juice ltd employee              Rs 10000
Taxes paid to government                         2000
Revenue received from sale of orange juice       40000
orange purchased from orange ltd                25000
ORANGE LTD
 Orange ltd pays Rs 15000 per year in wages to workers to pick
 and sells orange for 35000(Rs 10000 worth of orange to
 households and Rs 25000 worth of orange to juice ltd ) .Thus
 orange ltd profit before taxes is Rs 35000 – Rs.15000= Rs 20000
 Because orange ltd pays taxes of Rs 5000 ,its after tax profit is
 Rs 15000.


JUICE LTD

 Juice ltd buys Rs 25000 of orange from orange ltd and pays wages
  Rs 10000 to worker to process the orange juice. It sells the
  orange for Rs 40000, so its profit before taxes is Rs 5000 (Rs
  40000-25000-10000 ). After paying taxes of Rs 2000 ,its after
  tax profit is Rs 3000.
Product approach
• Market value of final finished goods and services
• Excludes intermediate goods used in intermediate
  stages of production
• Value added is the value of output minus value of its
  input

EXAMPLE:
  Revenue of Orange Inc = 35,000
  Value added by JuiceInc = output-input
                             = 40,000-25,000=15,000
  GDP = 35,000+15,000 = 50,000
Expenditure approach
•  Total spending on final goods
•  GDP= consumption+investment+govt. purchases+
  net exports
• Consumption is spending by domestic household on
  final goods
• Net exports means export minus import
EXAMPLE
       consumption from OrangeInc=10,000
       consumption from JuiceInc =40,000
       GDP     = 10,000+40,000     = 50,000
      INCOME APPROACH
     It includes
   Compensation of employees
   Proprietor’s income
   Rental income
   Corporate tax
                    OrangeInc    JuiceInc
EXAMPLE:
     Compensation           = 15,000+10,000= 25,000
     Proprietor’s income= 15,000+ 3,000= 18,000
     Tax                      = 5,000+ 2,000 = 7,000
     GDP                            = 50,000.
    PROBLEMS IN MEASURING

•   Ignores the non-market economy.
•   Ignores the quality of products.
•   Ignores the income distribution.
•   Ignores the costs of growth, pollution,
    accidents, etc.
•   Ignores the quality of life.
•   Lack of occupational specialisation.
•   Illiteracy.
•   Non availability of data.
PROBLEMS IN MEASURING
• Counts the output of the services sector
  erroneously.

• Counts the official exchange rate and thereby
  often under valued.

• Unreasonable comparison of goods.

• Counts the incomes generated through non-
  productive activities.
            SIGNIFICANCE
• National income data form the basis of
  national policies. E.g.: Employment
  policy.
• National data are of great importance in
  Economic Planning.
• National income data play a vital role in
  country’s per capita income, which
  reflects the economic growth of the
  country.
• It enables to find out the distribution in
  income or disparities in the incomes of
  the different sections of the society.
THANK YOU

								
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