EEB PPT CHP 3 NI

Economic Environment of Business
Chapter 3 National Income: Measurement and Environment Scanning Veena Keshav Pailwar Professor IMT Nagpur
Veena Keshav Pailwar copyright@Prentice Hall of India
Chapter 3 National Income: Measurement and Environment Scanning Main Points
Process of generation of income/ output

Different approaches of measuring total income Various aggregates measuring total output Equivalence of various aggregates Relationship between national and personal income Problems in the measurement of various aggregates Various uses of the concept of national income
Veena Keshav Pailwar copyright@Prentice-Hall of India 2
National Income: Definition

National income is the money value of allfinal goods and services produced in a county in a years time.
*
* * *
Money Value All Final Goods & services Given Country Given period of time
Circular Flow of Income Simple Closed Economy

Factor Markets Factor Income (Wage, Rent, Interest, Profit) Factor Payment (Wage, Rent, Interest, Profit)
Households
Firms
Expenditure on final goods and services Product Markets
Revenue from sale of final goods and service
Assumptions: 1. Only two agents : Business Firms and Households 2. No Government; No interaction with other countries
In a state of equilibrium
Factor payments
= Wages + Interest + Rent + Profit = Household Income = Household Expenditure = Value of Final Output
= National Income
Circular Flow of Income More Realistic Open Economy with Government

Factor Markets Factor Income (Wage, Rent, Interest, Profit) Factor Payment (Wage, Rent, Interest, Profit) Firms
Households
Expenditure on final goods and services Product Markets Leaka ges Saving Financial Markets
Revenue from Sale of Final Goods and Service
Injecti ons
Investment
Taxes
Government
Expenditure
Imports Rest of the World
Exports
Veena Keshav Pailwar copyright@Prentice-Hall of India
Leakages
Shrinks the size of the Circular Flow of Income Examples Saving Taxes Imports
Injections
Expands the size of the Circular Flow of Income
Examples Government Expenditure Investment Exports

Output/ Income Generated in an Economy
Output/ Income Produced in the Domestic Territory GDP
Output/ Income Produced by the Normal Residents GNP
Domestic Territory of a Country

Consists of Territory lying within the political frontiers (including territorial waters) Ships & Aircrafts operated by the residents between countries Embassies, govt. Offices, Consulates & Military Establishments of a country located abroad Excludes All foreign embassies and offices of the International Organizations located in the country
10
Domestic Territory
Political Territory (India) Foreign embassy Other govt offices
Political Territory (Other Countries)

Indian embassy
Indias GDP = Output produced within Indian Political Territory + Contribution by ships and aircraft + Output of Indian embassy Output of foreign embassy
Approaches to Measurement of Aggregate Income
Measurement of National Income

Expenditure Approach Value Added Approach Income Approach or or Net Product Method Factor Income Method
12
Investment: Various Concepts

Gross Domestic Capital Formation = Investment = Production (Income) - Consumption Gross Fixed Capital Formation Change in Stock (Inventory)
Investment in Plant, Machinery Building etc.

Investment: Various Concepts
Gross Fixed Capital Formation New assets produced domestically Import of new assets Net purchase of second hand assets from abroad
14
GDP : Expenditure Approach

1. Closed Economy with Govt.
Total Expenditure= Private Consumption Expenditure (C) + Private Investment Expenditure ( Ip ) + Government Consumption Expenditure (G ) + Government Investment Expenditure (Ig) = C + Ip +Ig + G = C + I+ G = GDP Where I = Ip + Ig
GDP : Expenditure Approach

2. Open Economy with Govt. and Transaction with Other Countries
Total Expenditure= Private Consumption Expenditure (C) + Investment Expenditure ( I ) + Government Consumption Expenditure (G ) + Exports (X) Imports (M) = C + I + G +X - M
Components of Expenditure
Components of Expenditure (Y)
Consumption Expenditure
Investment Expenditure (I)
Net Foreign Expenditure ( X M)
Private Consumption (C)
Government Consumption (G)
Private Investment (Ip)
Public Investment (Ig)
17
UEE 3.1 Drivers of Growth Expenditure Components of the GDP at current market prices
Year China India Private Final Consumption 1990 50.6 66.2 2000 46.2 63.7 2009 35.7 57.3 Government Final Consumption 1990 14.1 11.7 2000 15.8 12.6 2009 13.0 12.3 Gross Domestic Capital Formation 1990 36.1 26.0 2000 35.1 24.3 2009 47.7 35.0 Exports 1990 19.0 7.1 2000 23.3 13.2 2009 3.8* 20.6 Imports 1990 15.6 8.5 2000 20.9 14.2 2009 25.3 Discrepancy 1990 -4.4 -2.4 2000 0.5 0.3 2009 -0.3 0.0 GDP at current mp (billion, in national currency 1990 1867 5696.2 2000 9922 21023.1 2009 34051 62311.7 Pakistan 71.4 75.4 80.5 15.1 8.6 8.1 18.9 17.2 19.0 14.8 13.4 12.8 20.2 14.7 20.4 855.9 3826.1 12739.3 Singapore 45.4 41.9 40.9 9.5 10.9 11.5 35.1 33.2 27.2 177.4 192.4 199.3 167.4 179.6 178.2 0.0 1.1 -0.6 70390.6 162584.1 265057.9 442781 502990 474169 Japan 53.0 56.2 59.6 13.3 16.9 19.7 32.7 25.4 20.4 10.4 11.0 12.6 9.4 9.5 12.3
18
UEE 3.1 Drivers of Growth
The expenditure components help in understanding the ways in which the total GDP is used the sources of demand or drivers of growth
Type of growth Consumption led growth Investment led growth Export led growth
Country China Type of growth pursued Investment and export led growth
Type of problem Stagflation Supply glut Higher sensitivity to external shocks
India
Pakistan Singapore Japan
Consumption led growth: move towards investment and export led growth
Consumption led growth Export led growth Investment led growth, move towards more balanced growth
Factor Income Method

Compensation of Employees = Wages Operating Surplus = Rent + Interest + Profit Mixed Income of Self Employed
20
UEE 3.2 : Trends in the Components of Factor Income

In India the factor income is composed of compensation of employees, operating surplus and mixed income of self employed Difficulty in distinguishing the wages from operating surplus in the case of mixed income of self employed: no clear trend in different components of income can be ascertained The share of organized sector in the total factor income is gradually increasing The share of compensation of employees which used to be the dominant component till 2005-06 in the organized sector has decelerated Changing composition of income in favour of operating surplus: Indicates growing inequalities in India Under a progressive taxation system growing inequalities indicate better revenue collection for the government
NDP at factor cost by Factor Incomes at current prices

Factor Income 1990-00 2004-05 Compensation of Employees All Sectors Organized Unorganized All Sectors Organized Unorganized NDP (at factor Cost) All Sectors Organized Unorganized NDP at factor Cost (Rs crore) 100 40.5 59.5 1605103 100.0 41.0 59.0 2646370 100.0 41.9 58.1 3032583 100.0 42.7 57.3 3516947 100.0 42.4 57.6 4051770 100.0 43.2 56.8 4653419
22
2005-06 34.1 22.0 12.0 65.9 19.9 46.1
2006-07 32.7 20.7 12.0 67.3 21.9 45.3
2007-08 34.1 21.6 12.6 65.9 20.8 45.0
2008-09 34.2 21.7 12.6 65.8 21.5 44.2
37.4 24.2 13.2 62.6 16.3 46.3
34.6 22.2 12.4 65.4 18.8 46.6
Operating Surplus/ Mixed Income of Self Employed
Value Added Approach or Net Product Method

Estimation of Value Added Value Added by the Firm = Value of Final Output - Value of Intermediate Consumption _________________________ Income Generated by the Firm = Factor Income
Value Added by the Firms = Value Added in an economy
Production of Bread in the Economy An Example

Factor Payment/ Income Producers Farmer Miller Baker Total Output Input Value Added 100 200 350 650 100 200 300 100 100 150 350 Wage 60 40 65 Rent 10 5 15 Interest 5 15 20 Profit 25 40 50 Total 100 100 150 350
This example also illustrates Computation of value added at each level of production
Equivalence of the three approaches: Expenditure Approach, Income Approach, Value Added Approach
UEE 3.3: Methods of Measuring Sectoral Output

Method Production Approach (Value Added Method) Income Approach Sectors Agriculture & Allied Activities Forestry & Logging Fishing, Mining & Quarrying Registered Manufacturing Unregistered Manufacturing Gas, Electricity & Water Supply Banking & Insurance Transport, Communication & Storage Real Estate & Ownership of Dwellings Trade, Hotels & Restaurants Public Administration & Defense Other Services Construction
Expenditure Approach (Commodity Flow Method)
25
Various Concepts of National Income

GDP at Market Price = GDP at Factor Cost + Indirect Taxes less Subsidies GNP at Market Price = GNP at Factor Cost + Indirect Taxes less Subsidies NDP at Market Price = NDP at Factor Cost + Indirect Taxes less Subsidies
NNP at Market Price = NNP at Factor Cost + Indirect Taxes less Subsidies
Various Concepts of National Income
Gross Domestic Product Gross National Product Net Domestic Product market price factor cost market price factor cost market price factor cost
Net National Product market price factor cost
27
Domestic Income Vs National Income
Domestic Income = Total income (output) produced within the domestic territory of a country
National Income = Total income (output) produced by the Normal Resident of a country
28
Gross Vs. Net

One of the important components of national output: output of investment goods However, capital stock depreciates over a period of time Part of the investment may just be replacing the wear and tear in the existing capital stock Therefore, the proper estimate of the national income is the one that takes care of depreciation I = Gross Investment I Depreciation (Consumption of Fixed Capital ) = Net Investment
GDP Vs NDP Gross Product Vs Net Product

GDP = C + I + G + X- M Where I = Gross Investment GDP Depreciation = C + (I Depreciation) + G + X-M = NDP = Net Domestic Product = Wage + Rent + Interest + Profit = Net Value Added
I - Depreciation Net Investment

GDP Vs GNP
GNP = GDP + Net Factor Income from abroad
Net Factor Income from ROW
Income Earned for Factor Services by the Normal Resident Income Paid for Factor Services from the ROW
31
Market Price Vs. Factor Cost

When the government does not Tax and Provide Subsidy The prices faced by the consumers for different commodities are the same as the cost of producing commodities by the producers In the presence of Tax and Subsidy The prices faced by the consumers are different than the total cost of production
Existence of Indirect Tax: Increases the market price Market Price > Cost of Production (Factor Cost) Market Price = Factor Cost + Indirect Tax Or Market Price Indirect Tax = Factor Cost Existence of Subsidy: Lowers the market price Market Price < Cost of Production (Factor Cost) Market Price + Subsidy = Factor Cost Or Market Price = Factor Cost - Subsidy

Existence of Indirect Tax and Subsidy Market Price Cost of Production (Factor Cost) Market Price = Factor Cost + Indirect Tax - Subsidy Or Market Price Net Indirect Tax = Factor Cost
Where Indirect Tax Subsidy = Net Indirect Tax

GDP at fc Vs GDP at mp
GDP at fc (estimated at the cost faced by producers) Wage + Interest + Rent + Profit = C + I + G + X M Net Indirect Tax GDP at mp (estimated at the price faced by consumers) C+I +G + X-M = Wage + Interest + Rent + Profit + Net Indirect Tax = Value Added + Net Indirect Taxes
GDP at fc Vs GDP at mp
GDP at fc = GDP at mp Net Indirect Taxes
GDP at mp = GDP at fc + Net Indirect Taxes Where Net Indirect Taxes = Indirect Taxes - Subsidies
National Income
NI = NNP at fc
National Income = Net National Product at factor cost
37
Relationship among Eight Variants of National Product Aggregates

GNP mp
Depreciation
Net Income from Abroad

GDP mp
Net Indirect Taxes
NNP mp Net Income from Abroad Depreciati on Net Indirect Taxes NDP mp NNP fc Net Income from Abroad NDP fc Net Indirect Taxes
GNP fc Net Income from Abroad Depreciatio n
GDP fc
Net Indirect Taxes
Depreciation
38
Relationship between Various Concepts of National Income and Aggregate Personal Income
GNP mp (-)Depreciation NNP mp (-)Indirect Taxes (+)Subsidies NNP fc
PI
(-)Corporate Taxes (-)Undistributed Profit (+)Transfer Payments

(-)Personal Income Taxes
DPI (-) Personal Savings
PO
Problems in the Measurement of National Income
Exclusion of value of personal services rendered to oneself in the national product accounts Omitted market transactions Non-market activities and imputation Changes in the inventories and inventory valuation adjustment Final product- current & constant Rupees
Non Market Activities and Imputations

Examples Farm production and consumption Services yielded by the owner occupied houses Wages paid in kind to farm workers
41
Non-Market Activities and Imputations Difficulties in Imputations

Valuation : at the cost of production or at market price Market price may vary if all the supply is marketed Quality of the retained output or payment in kind may vary Equivalent goods and services may not be available in the market: e.g.: police and defence
Changes in Inventories & Inventory Valuation Adjustment Difficulties in Valuation
Official Figures: value the inventories at average price

Firms: value the inventories at the book value Difference: is adjusted as inventory valuation adjustment
Helps in avoiding the overstating or understating the corporate profits and proprietors income and, therefore, national income
Inter-temporal and Inter-Spatial Comparison of National Income
Change in Prices
Changes in Taste
Changes in Consumption Basket Changes in the Quality Emergence of New Goods and Services
Uses of National Income Estimates Measure of Economic Growth Indicator of Success or Failure of Planning
Indicator of Structural Change

Measure of Income Inequalities Indicator of the Pattern of Consumption and Investment Measure of International and Spatial Comparisons Measure of Business Cycles
Measure of Economic Growth

National Income at Constant Prices
Indicates the economic growth of a country in real terms
46
Indicator of Success or Failure of Planning

National Income at Constant Prices
Achievements Vis a Vis the Targets: indicate the success of planning
47
Indicator of Structural Changes

Sectors Classification I Primary Secondary Tertiary Classification II Agriculture Industry Agriculture and allied (forestry, logging and fishing) Manufacturing; mining & quarrying; electricity, gas & water supply; construction Agriculture (cultivation of crops, livestock and animal husbandry); forestry, logging & fishing; mining & quarrying Manufacturing; electricity, gas & water supply; construction Trade, transport & communication; Financial, real estate and business services; Community, social and personal services Activities Covered
Services
Trade, transport & communication; Financial, real estate and business services; Community, social and personal services

Sectors Primary Characteristics Many of the products of this sector are used as inputs in the secondary sector Wealth creating sectors Secondary Most of the products are finished products consumed by the households or other business organizations Wealth creating sectors
Tertiary
Consists of commodities which are intangibles - Consumer services: Tourism, health care and education - Producer services: Transport and Finance Wealth consuming sector
49

Dominant Sector/ Stage of Development Primary/ Agriculture Early Stage of Development Secondary/ Industry Second (Middle) Stage of Development Characteristics
Value addition low: low growth rate Low level of income restricts the demand pattern: Major proportion of the income is spent on agriculture products Significant transfer of resources from agriculture to industrial sector Value addition higher than the first stage of development Demand pattern becomes more diversified: Demand for industrial products increases Countries more open to trade & competition Value addition is the highest in services Displaces unskilled labour: More employment opportunities for the skilled labour
Tertiary/Services Highest level of development

Phenomenon of Leapfrogging in Growth Process Surpassing the middle stage of growth Moving directly from an agrarian economy to a service oriented economy
Underdeveloped physical infrastructure and industrial sector may constraint the sustainable growth
UEE 3.4: Structural Shift in the Indian Economy

Country Agriculture Industry Services
1980 1990 2000 2009 1980 1990 2000 2009 1980 1990 2000 2009 China India Indonesia Korea Malaysia Pakistan 30.1 27.1 15.1 10.3 48.5 41.3 45.9 46.3 21.4 31.5 39.0 43.4 38.1 29.3 23.4 17.1 25.9 26.9 26.2 28.2 36.0 43.8 50.5 54.6 24.8 19.4 15.6 15.3 43.4 39.1 45.9 47.6 31.8 41.5 38.5 37.1 14.9 8.7 15.0 4.6 8.3 2.6 41.3 39.9 38.1 36.7 43.7 51.5 57.3 60.7 9.3 41.5 46.8 43.4 43.5 44.9 47.3
29.6 26.0 25.9 21.6 25.0 25.2 23.3 24.3 45.5 48.8 50.7 54.2
Phillipines 25.1 21.9 15.8 14.8 38.8 34.5 32.3 30.2 36.1 43.6 52.0 55.0 Thailand 23.2 12.5 9.0 11.6 28.7 37.2 42.0 43.3 48.1 50.3 49.0 45.1
UEE 3.4: Structural Shift in the Indian Economy The sectoral composition of the GDP is changing in favour of services In line with the development experience of developed countries However, the share of industrial sector is particularly low: Signifies a phenomenon of leapfrogging
53
UEE 3.4: Structural Shift in the Indian Economy Leapfrogging made possible by Advances in communication technology A large supply of trained tnglish speaking personnel
Reforms: especially in the financial sector

Deregulation of the services sector Privatization Opening up of the economy to FDI
UEE 3.4: Structural Shift in the Indian Economy
Mismatch between Income and Employment Agriculture Sector The lowest share in the GDP The highest Share in employment Disguised Unemployment
Measure of Income Inequalities

Relationship between income inequalities and growth
Non-Linear Higher Inequalities: Growth retarding in poor countries Growth encouraging in advanced developed regions High inequalities and high egalitarianism slows down the growth process
Measures of Income Inequalities

Lorenz Curve Gini Coefficient Robin Hood Index Quantile Ratio
57

Lorenz Curve
Cumulative Percentage of Income 100 80 0
50
Line of absolute equality

A c
20 a 0 20
b 50
B 80 100
Lorenz curve
Cumulative Percentage of Population
Lorenze Curve Gives a broad picture of inequality The closer the curve is to the 45 degree line the more equal the distribution of income is.

Gini Co-efficient (G)
G = Area Bounded by the 45 degree line and the Lorenz curve Entire area below the 45 degree line
= A / (A +B) Range for G 0G1 G = 0 : Perfect equality in income distribution G = 1 : Complete inequality in income distribution

Robin Hood Index ( R )
R = The value of the maximum vertical distance between the Lorenz curve and the 45 degree line
Value of the index provides an estimate of the income that needs to be transferred from the population above the mean to those below the mean
60

Quantile Ratio ( Q ) Persons are ranked on the basis of income from the lowest to the highest Divided into equally sized groups Distribution of population First Quantile 5 equally sized groups: Quantile = First Two Deciles 10 equally sized groups: Deciles = First 20 Percentiles 100 equally sized groups: percentiles
One quantile is compared with another to estimate the level of inequality, i.e., Q (P2)/ Q(P1) where P1 & P2 are percentile
Indicator of the Pattern of Consumption and Investment The GDP measured using expenditure approach reveals Consumption Pattern The changes in expenditure pattern reflects the changes in demand pattern Business organizations can use this information to avoid the mismatch between demand and supply
Consumption Expenditure Demand
Investment Expenditure
Productive Capacity
Supply in the long run

62
International and Spatial Comparisons

Problems in Inter Spatial Comparison
NI of different countries expressed in different currencies
Different countries experience different degrees of price levels

Countries vary in terms of population size
Accounting for the Difference

Population Variation: Per Capita Income Currency Variation: Use of Common Currency
Price Level Variation: Purchasing Power Parity


Purchasing Power Parity (PPP)
Process
Construct a common representative basket of goods and services Collect the prices of commodities in the selected basket Estimate un-weighted bilateral price ratios (parities) Aggregate un-weighted parities using the expenditure data
Convert the GDP or per capita income into a common currency and the price level

Per Capita Income using PPP An Illustration
Price A Food Cloth $ 50 $ 100 B Rs 300 Rs 500 A 80 60 Units B 100 40 Expenditure A $ 4000 $ 6000 $10000 B Rs 30000 Rs 20000 Rs 50000 Price Ratio $/Rs 50/300 100/500 Expenditure in Us $ B Rs30000x($50/300) = $ 5000 Rs20000x($100/500 ) = $ 4000 = $ 9000
Comparing the expenditure in the two countries using US $ indicates that income in country A is 10 times more than income in country B The expenditure in terms of PPP however indicates that the expenditure in country B is 90% of the expenditure in country A
UEE 3.6: Richest Nations in the World 2010

GDP Per Capita ($) Country Luxembourg Norway Qatar Switzerland United Arab Emirates Denmark Australia Sweden United States 2010 108,831.70 84,443.63 76,167.85 67,246.00 59,716.85 56,147.14 55,589.55 48,874.61 47,283.63 Rank 1 Qatar 2 Luxembourg 3 Singapore 4 Norway 5 Brunei Darussalam 6 United Arab Emirates 7 United States 8 Hong Kong SAR 9 Switzerland GDP Per Capita (PPP) ($) Country 2010 88,558.83 81,383.26 56,521.73 52,012.51 48,891.67 48,820.86 47,283.63 45,736.27 41,663.05 Rank 1 2 3 4 5 6 7 8 9
Netherlands Memo India
47,172.14
1,264.84
10 Netherlands
135 India
40,764.55
3,339.31
66
10
126
Environment Scanning & National Income

Business Cycles
Level of Economic Activity / Level of National Income Peak D Peak B
E Trough C Trough
A Trough
One Business Cycle

Contraction Expansion No. of Years
67
Phases in Growth Cycles
Rate of growth of national income
Expansion
B
Slowdown
D
Recession E Recovery
A
Recovery
Depression No. of Years
68
Growth Rate Cycles Vs Business Cycles

Growth Rate of Economic Activities 0
Expansion Growth Rate Downturn
Peak A
E Growth Rate Cycles B Trough C

Recession
D No. of Years
Growth Rate upturn
Business Cycles Level of Economic Activities G Expansion F Contraction Peak H I J Trough
No. of Years
69
Measurement of Business Cycles

Need high frequency data Need data on the variables which represent overall picture of an economy In the absence of high frequency data on national income movements in sectoral output data are taken as the representative For the countries dependent on industrial activities the IIP can be taken as the representative
For primarily agrarian economies data on the agriculture GDP can be used for measuring business cycles
UEE 3.7: Global Economic Scenario: Expansion, Slowdown, Recession and Recovery Sustained global growth of 5% during 2004-07
Outbreak of the US subprime crisis put a break on this high growth phase
Mild Recession in some of the advanced economies in 2008; emerging economies continued to grow at robust rate Failure of the major financial institutions in the USA and other advanced economies resulted in a sharp decline in equity prices and disruption in the flow of trade finance and working capital
UEE 3.7: Global Economic Scenario: Expansion, Slowdown, Recession and Recovery
World in severe recession in 2009 Emerging markets were also hit hard by a steep drop in equity prices and disruptions in trade and capital flows Unprecedented slowdown of economic activities and trade world over Contraction in some of the advanced economies in 2009
UEE 3.7: Global Economic Scenario: Expansion, Slowdown, Recession and Recovery
Global recovery in 2010 To overcome the crisis coordinated monetary and credit policies were pursued Conventional measures: lowering interest rate and reserve requirement Unconventional measures: purchases of private sector debt by the central banks Governments interventions: rolling out fiscal stimulus packages Impact of these measures
supported demand Improved financial conditions Lowered uncertainty Bolstered confidence Improved investment World output registered impressive recovery
73

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Economic Environment of Business

Veena Keshav Pailwar copyright@Prentice Hall of India

Chapter 3 National Income: Measurement and Environment Scanning Main Points

Process of generation of income/ output

National Income: Definition

Circular Flow of Income Simple Closed Economy

Expenditure on final goods and services Product Markets

Revenue from sale of final goods and service

Circular Flow of Income More Realistic Open Economy with Government

Revenue from Sale of Final Goods and Service

Imports Rest of the World

Veena Keshav Pailwar copyright@Prentice-Hall of India

Expands the size of the Circular Flow of Income

Examples Government Expenditure Investment Exports

Output/ Income Generated in an Economy

Output/ Income Produced in the Domestic Territory GDP

Output/ Income Produced by the Normal Residents GNP

Veena Keshav Pailwar copyright@Prentice-Hall of India

Domestic Territory of a Country

Veena Keshav Pailwar copyright@Prentice-Hall of India

Political Territory (Other Countries)

Approaches to Measurement of Aggregate Income

Measurement of National Income

Veena Keshav Pailwar copyright@Prentice-Hall of India

Investment: Various Concepts

Investment in Plant, Machinery Building etc.

Investment: Various Concepts

Veena Keshav Pailwar copyright@Prentice-Hall of India

GDP : Expenditure Approach

GDP : Expenditure Approach

Components of Expenditure (Y)

Investment Expenditure (I)

Net Foreign Expenditure ( X M)

Private Consumption (C)

Government Consumption (G)

Private Investment (Ip)

Public Investment (Ig)

Veena Keshav Pailwar copyright@Prentice-Hall of India

Veena Keshav Pailwar copyright@Prentice-Hall of India

UEE 3.1 Drivers of Growth

Type of problem Stagflation Supply glut Higher sensitivity to external shocks

Factor Income Method

Veena Keshav Pailwar copyright@Prentice-Hall of India

UEE 3.2 : Trends in the Components of Factor Income

NDP at factor cost by Factor Incomes at current prices

2005-06 34.1 22.0 12.0 65.9 19.9 46.1

2006-07 32.7 20.7 12.0 67.3 21.9 45.3

2007-08 34.1 21.6 12.6 65.9 20.8 45.0

2008-09 34.2 21.7 12.6 65.8 21.5 44.2

37.4 24.2 13.2 62.6 16.3 46.3

34.6 22.2 12.4 65.4 18.8 46.6

Operating Surplus/ Mixed Income of Self Employed

Veena Keshav Pailwar copyright@Prentice-Hall of India

Value Added Approach or Net Product Method

Production of Bread in the Economy An Example

UEE 3.3: Methods of Measuring Sectoral Output

Expenditure Approach (Commodity Flow Method)

Veena Keshav Pailwar copyright@Prentice-Hall of India

Various Concepts of National Income

Various Concepts of National Income

Net National Product market price factor cost

Veena Keshav Pailwar copyright@Prentice-Hall of India

Domestic Income Vs National Income