MBA 1st Sem - Module 5, Unit 2 -Economics for Managers - VTU Syllabus,

1. Module 5 - Syllabus
Indian Economic Development:
● Overview of Indian Economy – Recent Changes in
Indian Economy – Measurement of National Income:
Basic Concepts, Components for GDP – Measuring of
GDP and GNP – Problems in measuring National
Income – Growth Rate – Business Circle – Features –
Phases – Economic indicators – Inflation Types –
Measurement – Kinds of Price indices – Primary,
Secondary and Teritary Sector in the contribution to
the economy – SWOT analysis of Indian Economy.

2. National Income
● National Income means the Total Income of a
Nation.
● National Income can be calculated based on
earnings from 'Total Output of Goods and
Services (Productivity)', 'Earnings of
Nationals within country and abroad' and
'Expenditure by Private Consumption,
Investments and Government Consumption'

3. National Income - Meaning
National Income is the most important variable
and determinant of the business level and
economic status of the economy.
'National Income refers, to the Total National
Output' or Value of nation's output during a
specific period usually a year'.
National Income reflects level of aggregate
output of a country.

4. National Income - Meaning
'National Income is the final outcome of all
economic activities of a nation valued in
terms of money'.
'National Income is the total net value of all
goods and services produced within a
nation over a specified period of time'.

5. Three Approaches to measure
National Income
National Income Approaches:
1. Output-Value Added Approach: Output Value
Approach, is the total monetary value of outputs at different levels of
production. There are difficulties in collection and calculation of the
data.
2. Expenditure Approach: In any economy there are 3
agencies who spend – Private Consumption, Government
Consumption and Investment.
3. Income Approach: Income from the factors of
production, in the form of rent, wages, profit and Interest.

6. 3 methods for measuring National
Income
● Production Method or Output-Value Added
Method (GNP), (Method to view National
Income from outside) or Net Product Method.
● Expenditure Method (Method to view on
expenditure on various goods and services
(GNE).
● Income Method or Factor Income Method,
Factor Share Method, Income Distributed
Method and National Income by Distributed
Shares Method (GNI),

7. Methods for measuring National
Income
National Income of an economy is measured in
three different angles: (In brief, National Production,
National Income and National Expenditure Methods)
1. Aggregate of Productive Units of different sectors, like
Agriculture, Mining, Manufacturing, Trade and Commerce,
Services etc... (Net Product Method - GNP)
2. Combination of individuals and households owning
different kinds of factors of production, which they use for
themselves or sell factor services to make their livelihood.
(Factor Income Method - GNI)
● 3. Collection of consuming, saving and investing units
(Individuals, Households, Firms and Government).
(Expenditure Method - GNE)

8. Meaurement of National Income
● From the basic, Now we shall go with Technical
issues related to National Income. At MARKET
PRICE and FACTORS COST.
ACCOUNTING IDENTITIES IN MARKET PRICE:
GNP = GNI (Gross National Income),
GDP = GNP less net income from abroad,
NNP = GNP less depreciation,
NDP = NNP less net income from abroad

9. Measurement of National Income
ACCOUNTING IDENTITIES AT FACTOR COST:
GNP at factor cost = GNP at Market Price less net indirect
taxes,
NNP at factor Cost = NNP at Market Prices less indirect taxes,
NDP at factor cost = NNP at Market Price less net income
from abroad,
NDP at factor Cost = NDP at Market Prices less indirect taxes,
NDP at factor cost = GDP at Market Price less depreciation.

10. Measurement of National Income
Hence, the 3 ways to know the value of nation's
output or the National Income are:
● GNP – Gross National Product, (Value added
or Production)
● GNI – Gross National Income, (Income)
● GNE – Gross National Expenditure
(Expenditure)
Where
GNP = GNI = GNE

11. Measures of National Income
Measures of National Income:
[Gross National Product (GNP), Gross Domestic Product (GDP)
and Net National Product (NNP).]
"Gross National Product (GNP), is defined, as the
value of all final goods and services produced during a
specific period, usually a year, plus income earned
abroad by the nationals minus income earned locally
by the foreigners"
GNP is identical to the concept of GNI,
Thus GNP = GNI. The difference between the two is
only the procedural nature.

12. Measures of National Income
GNP is estimated on the on the 'BASIS OF PRODUCT
FLOWS', GNI is estimated on the 'BASIS OF MONEY
INCOME FLOWS (Ex: Wages, Profits, Interest, etc)'
● "GDP (Gross Domestic Product) is defined as the
market value of all final goods and services produced
in the domestic economy during a period of one year
plus income earned locally by foreigners minus
incomes earned abroad by the Nationals".
The concept of GDP is similar to that of GNP with a
significant procedural difference.

13. Measures of National Income
Net National Product (NNP) is defined as Gross
National Product (GNP) less depreciation.
NNP = GNP – Depreciation
Net National Product (NNP) is measured at Market
Prices including Direct Taxes. (Indirect Taxes are
however not the part of actual cost of production)
Therefore to obtain the real national income, Indirect
Taxes are deducted from the NNP.
Thus "NNP less Indirect Taxes = National Income'

14. Measures of National Income
What is depreciation?
Depreciation is the term used to denote the worn out
or used up capital in the process of production. An
estimate value of depreciation is deducted from the
Gross National Product (GNP) to arrive at Net National
Product (NNP)

15. Factors affecting National Income
● Factors of production: Land, Labor, Capital
and Enterprenuership.
● Technology: Technology includes the number
of inventions in a country.
● Government: Huge Investments, Law and
Order, Exchange Regulations.
● Political Stability: War-Free, Strike-Free, Free
from social unrest.

16. Difficulties in measuring National
Income
1. Non-Monetary Transactions: House Wives
Services or farm output consumed at home...
2. Government's Administrative Services are
difficult to measure: Services of Judges,
Defense, Administrative positions like PM, CM..
3. Income raised from foreign firm: As per
IMF, income generated from production of a
country is ascribed to the territory, while the
profit earned are credited to parent firms.

17. Difficulties in measuring National
Income
4. Illiteracy: Due to illiteracy, Nationals are
unable to know the farm's output quantity and is
unable to track the 'Regular Price Index' of his
output.
5. Occupational Specialization is an
incomplete economic function.
6. Unorganized and Scattered Business
Operations
7. Inadequate, non-available and unreliable
data, misleads the measurements.

18. Difficulties in measuring National
Income
8. Difference between the finished good and
intermediate goods, is another difficulty.
9. Earnings from Gambling, seizure of
goods by Govt: Income generated from
Gambling like, Lottery, Seize by CBI or Defense
Department.
10. Factors in process or change in
business plan by a firm.

19. Limitation of National Income
Statistics
1. Price Change, Due to high inflation, the real
GNP cannot reflect the exact standard of living.
2. Population Change,
3. Omittion or under-estimation of goods,
4. Distribution of Income and Wealth,
5. Govt's Confidential decisions, Defence
purchases, R&D,