Economic Growth (Part-1) BY: BALWINDER SINGH(M.A.ECONOMICS)
National income calculation It is define the income of a country within the period of one financial year which equals to the expenditure made by the government on various programs and policies which can also be considered as the value added in the productivity of a country over the period of time. National income accounting for a country can be measure in 3 ways 1. National income by income method 2. National income by expenditure method 3. National income by value added method
National income defined as GDP and GNP GDP is the calculation of production how goods and services within the boundaries of nation whereas GNP includes the production of goods and services including foreign income mean what foreigners produce in the country that is subtracted from what Indian produce abroad or vice-versa. The concept of GNP is the value added in the gross productivity of the nation. GNP(MP) FINAL PRODUCT-INTERNEDIATE GOODS . Whereas, net National Product consider as the GNP after deducting depreciation over the productivity of the country NNP(MP)= GNP(MP) -DEPR CIATION. whereas, national income is the net National Product at factor cost which we can have after deducting net indirect taxes from net National Product at market price NATIONAL INCOME= NNP(MP)-NET INDIRECT TAXES
Base year for the calculation of national income Base year is a specific year from which the economic growth is measured it is allocated the value of 100 in an index The estimates at the prevailing price of the current year are estimated as 'at current prices' while those prepared at base price are termed "as constant prices". The comparison of the two estimates gives the measure of the real growth that defines the production of the current year is valued at the base year price so that the real growth is worked out by deducting the impact of inflation or deflation
. The increase in the value of GDP due to inflation is excluded and the real increase of goods and services is found out. The base year for national income accounting is changed over the period of time to take into account the new goods and services in the economy that those to detect a true picture of economic growth. . The national statistics Commission wants that the base Year should be revised every after 5 years. When the base year of the national account statistics is changed, there is some changes in the level of GDP estimates.
This happens due to widening the coverage and counting of actual production The base year has to be normal year without large fluctuations in production trade and prices of commodities * In general it should be as recent as possible
GDP Deflator . GDP deflator is a measure of inflation that tracks the price change in the entire economy and not a specific Limited basket of goods and services as in the price indices of wholesale price index and consumer price indices. It is implicitly derived from National accounts data as the ratio of GDP at the current price to constant prices. At present the GDP deflator is available only Annual with a long leg of over 1 year. That is why it has very limited used for the conduct of policie.
When the GDP deflator is in the negative the nominal GDP is less than the real GDP that means there is a deflation in the country. Seasonal adjustments estimation of GDP GDP should be seasonally adjusted to factor for fluctuations that normally occur at about the same time at the same magnitude each year. .Seasonal adjustment ensure that moment is GDP should reflect two patterns in economic activity.
Thank you for watching...
I teach quantitative aptitude since last 7years and currently working with Chandigarh University