2.  Marshall‟s definition of National Income.
◦ “The labor 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 true net
annual income or revenue of the country or national
dividend.”
Defects of this definition:
 Multiple goods and services
 Fear of Double Counting
 Many of produced commodities are not marketed and
are kept as self consumption
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3.  Pigou‟s definition of National Income.
 “National income is that part of objective income of
community, including of course income derived from
abroad which can be measured in money.”
 Defects of this definition:
 There is no difference in the fundamental forms of goods
which can and can not be exchanged for money.
 This definition is applicable only to developed countries
where every good and service is purchased for money
from the market. So it is not applicable to backward and
underdeveloped countries.
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4.  Fisher‟s Point of view: earlier two definitions are
based on production concept. But this definition is based on
„consumption concept.
 “The national income or dividend consists solely of
services as received by ultimate consumers,
whether from their martial or from their human
environment.‟ this definition provides an adequate
concept of economic welfare which is dependent
on consumption and consumption represent our
standard of living.
 Defects of this point of view.
◦ Difficult to calculate money value of net consumption.
◦ Difficult in case of durable good.
◦ In case of Exchange of second hand goods.
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5.  So National income Means the total value of
goods and services produced annually in a
country.
 Or total amount of income accruing to a
country from economic activities in a year‟s
time which includes payments made to all
resources in the form of wages, interest, rent
and profits.
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6.  Gross Domestic Product at market price
 Gross National Product at market price
 Net National Product at market price
 Net Domestic Product at Market Price
 Net Domestic income or product at Factor
Cost
 Gross Domestic income or product at Factor
Cost
 Net National product at Factor Cost or
National income
 Gross National product at Factor Cost or
Gross National income
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7.  Gross domestic product (GDP) is a measure of
the income and expenditures of an economy.
 It is the total market value of all final goods
and services produced within a country in a
given period of time.
 GDP= Market Price X Final Goods and Services
◦ Its Gross before depreciation
◦ Domestic production only
◦ Value of Final goods and services
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8.  GDP at market price=C+I+G+(X-M)
 GDP at factor cost=sum of value added
 GDP at factor cost
= wage+rent+interest+gross
profits+depreciation
 GDP at factor cost + indirect business
taxes –subsidies
= GDP at market price
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9.  GNP is the total measure of flow of goods and
services at market value resulting from
current production during a year in a country
including net income from abroad.
 So, it includes
◦ Consumers‟ goods and services to satisfy the
immediate wants of the people.
◦ Gross private domestic investment in capital goods.
◦ Goods and Services Produced by government.
◦ Net exports of goods and services.
◦ So GNP = GDP at Market Price + Net Factor Income
from Abroad
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10.  Index of current year to a base year
 Market Price of only final product should be
taken into account to avoid double counting
 Goods and services rendered free of charges are
not included
 Sale/Purchase of old goods, shares, bonds,
existing assets should not be considered
 Profit/Loss on account of change in price of
capital asset should not be considered
 Income from illegal activities should not be
considered
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11. Income Approach:
 Remuneration paid in terms of money to factors
of production annually in a country. It is the sum
total of following
◦ Wages and Salaries
◦ Rent
◦ Interest
◦ Dividends
◦ Undistributed corporate profits
◦ Mixed Income
◦ Direct Taxes
◦ Indirect Taxes
◦ Depreciation
◦ Net Income Earned from abroad
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12. Expenditure Approach to GNP
 Sum total of expenditure incurred on goods
and services during one year in a country. It
includes
◦ Private consumption expenditure (C)
◦ Gross domestic private investments( I)
◦ Net foreign investment (X-M)
◦ Government Expenditure on goods and services (G)
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13.  It includes money value of final goods and
services at current prices during a year. It
excludes the value of intermediate products.
 If all such differences are added up for all
industries in the economy we arrive at GDP by
value added.
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14.  Income earned involved in economic activities
(production) and
 Income earned by residents (individuals /
organizations) and
 The economic activities are carried out within
or outside the economic territory and
 In a current year
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15.  Under what situation when GDP is greater
than GNP?
 Income earned by non-residents locally is
greater than income earned by residents
abroad
 Net Income from abroad is negative
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16.  GDP / population size
 If we compare HK’s GDP with China’s GDP,
which one is larger?
 If we compare HK’s per capita GDP with
China’s GDP, which one is larger?
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17. The equality of income and
expenditure can be illustrated
with the circular-flow
diagram.

18. Revenue Spending
Market for
Goods
Goods & Goods &
Services sold and Services
Services
bought
Firms Households
Inputs for Labor, land,
production Market for and capital
Factors
Wages, rent, of Production Income
and profit 18

19.  Market Value of Final goods and services
produced during a year
+
 Net Factor income from Abroad
–
 Depreciation/ capital consumption
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20.  Net Domestic Product at Market Price
= Value of Currently produced Final Goods/ Services
- Capital Consumption/ Depreciation
 Net Domestic Income or Product at factor
cost
= Wages/ Compensation for Employment + Rent,
interest, Profit or operating Surplus + Mixed Income
 Gross Domestic Income or Product at factor
cost
= Wages + Rent +Interest + Profit + Consumption of
Capital/ Depreciation
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21.  Net National Product at Factor Cost or
National Income
= Net Domestic Product at factor Cost (Rent +
Wages + interest + Profit)
 Gross National Product at factor Cost or
Gross National Income
= Wages + Rent +Profit + Interest +Depreciation +
Net Factor Income from Abroad
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