This document provides in-depth knowledge to the reader about basic concepts related to macroeconomics namely: domestic income, national income, normal resident, GDP, NDP, NVA, GVA, market price, net indirect tax, net factor income from abroad, GDP and welfare , nominal and real GDP, GDP deflator. ...
basic concepts of macroeconomics, national income and related aggregates
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Friday, 22 July 2022
National income and related aggregates
Macroeconomics
Module 1
1.1—————————————————————————————————————————————
NATIONAL INCOME
• National income is the sum total of factor incomes earned by normal residents of a country during the
period of an accounting year.
1.2—————————————————————————————————————————————
FACTOR INCOME
• Factor incomes are the payments made by the producing units to the households for the use of
their factor services.
• National income is the sum total of factor incomes.
• These are included in the estimation of national income.
• Factor income is earned income
• Factor incomes are classi ed as :
-compensation of employees (received by households for rendering their services)
- rent (received by households for the use of their lands by the producing units).
-interest (receiving by the households for the use of their capital by the producing units).
-pro t (received by the households for the use of their entrepreneurial skills by the producing units).
TRANSFER INCOME
• Transfer incomes are those incomes which are received by a person as help, donation or charity,
etc.
• Transfer incomes are unearned incomes.
• These are incomes are not included in the estimation of national income.
Factor income Transfer income
• Factor incomes are the payments made • Transfer incomes are those incomes
by the producing units to the households which are received by a person as help,
for the use of their factor services. donation or charity, etc.
• Factor income is earned income • Transfer incomes are unearned incomes.
• These are included in the estimation of • These are incomes are not included in the
national income. estimation of national income.
1.3—————————————————————————————————————————————
NORMAL RESIDENTS
• A normal resident is said to be one (i)who ordinarily resides in the concerned country. (ii)whose
centre of economic interest lies in that country.
• An ordinal resident includes:
-The person may or may not be a citizen of the country but is living there for more than one year.
- a person who has his economic interest in the country and carry out all their economic activities such as
production, consumption or investment in that country.
• Examples of residents and non-residents of a country :
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, Notes
Normal residents of India Non residents of India
Indians working in foreign embassies in India Foreingers working in Indian ebassies in Japan and
Canada.
indians employed in WHO located in India Foreingers working in WHO located in Japan
Local people working in the of ce of Interntional The German working as director of the of ce of the
monetary fund in India international monetary fund located in India
ambassador of India for the rest of the world Ambassador in india for the rest of the world
The foreign citizens living in India for a period of more The foreign technical experts working in india for a
than one year (other than studets and medical patients ) period of less than one year.
Module 2
2.1—————————————————————————————————————————————
• Domestic income is the sum total of factor incomes generated within the domestic territory of a
country(no matter who generates it normal or non-residents).
• Domestic income is the sum total of factor incomes generated within the domestic territory of a
country during a period of an accounting year.
• National income is the sum total of factor incomes earned by normal residents of a country(no
matter where it is generated within the domestic territory or outside).
2.2—————————————————————————————————————————————
DOMESTIC TERRITORY/ ECONOMIC TERRITORY
• The domestic territory of a country is the economic territory of the country in which the
economic activities of the country generate its domestic income.
• Foreign embassies located in India are not a part of the domestic/economic territory of India. Indian embassies
located abroad are a part of India’s domestic territory.
• Domestic territory includes political boundaries, embassies, consulates, ships, aircraft etc.
Formulas Abbreviations
1.
Domestic income = factor income of normal residents +factor income of
non-residents
2. Domestic income +NFIA = national income 1. NFIA = net factor
3. NFIA = factor income earned by our residents from rest of the world - factor income from abroad
income earned by non residents in our domestic territory.
4. Domestic income = national income-NFIA
NFIA
• Net factor income from abroad is the difference between :
-factor income earned by our residents who are temporarily residing abroad.
- factor income earned by non-residents who are temporarily residing in our country.
2.3—————————————————————————————————————————————————
• Domestic income = domestic product
Formulas
1.1. domestic income+NFIA = national income
2. Domestic income +NFIA= national product
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