Class 12 Macroeconomics - National Income

National Income represents the total value of all final goods and services produced by a country's residents in a year.

1. Basic Concepts

• Final Goods vs Intermediate Goods: Goods for consumption vs goods for further production.
• Stock vs Flow: Wealth (Stock) vs Income (Flow).
• Depreciation: The fall in value of fixed assets due to normal wear and tear.

2. Three Methods of Calculation

A. Value Added Method (Product Method)

$GVA_{MP} = \text{Value of Output} - \text{Intermediate Consumption}$ $\text{National Income} (NNP_{FC}) = GDP_{MP} - \text{Depreciation} + NFIA - NIT$

B. Income Method

Sum of factor payments:

• Compensation of Employees (Wages, Salaries).
• Operating Surplus (Rent, Interest, Profit).
• Mixed Income of Self-Employed.$NDP_{FC} = \text{COE} + \text{OS} + \text{MI}$

C. Expenditure Method

Sum of expenditures: $GDP_{MP} = C + I + G + (X - M)$ Where:

• $C$: Private Final Consumption.
• $G$: Government Final Consumption.
• $I$: Gross Investment.
• $(X-M)$: Net Exports.

3. Real vs Nominal GDP

• Nominal GDP: Measured at current prices.
• Real GDP: Measured at base year prices (True indicator of growth).
• GDP Deflator: $\frac{\text{Nominal GDP}}{\text{Real GDP}} \times 100$

4. Circular Flow of Income

The continuous movement of income and expenditure between different sectors (Households and Firms) in a two-sector economy.

📈 Formula Cheat Sheet

• $NNP_{FC} = NNP_{MP} - NIT$
• $GNP = GDP + NFIA$
• $NDP = GDP - \text{Depreciation}$

Practice at least 10 numericals on the Expenditure Method! 📊🔢