National income Definition National income is the sum

National income Definition: National income is the sum total of factor incomes earned by normal resident of a country during the period of an accounting year Or National income is the market value of produced final goods and services by normal resident of country during an accounting year.

Expenditure Method it is also called Consumption and investment method or Income disposal method National income is estimated in term of expenditure on the purchase of final goods And services in the economy during an accounting year.

Classification of final expenditure 1. 2. 3. 4. Private final consumption expenditure C Government final consumption G expenditure Investment expenditure I Net export X-M

Private final consumption expenditure ● ● 1. 2. 3. It refers to expenditure on final goods and services by the individuals households and non profit private institutions serving society. It includes Consumer services Consumer non durable goods Consumer durable goods

Government final consumption expenditure ● ● It refers to expenditure on final goods and services by the government. Like expenditure on purchase of goods for consumption by the defence personnel.

Investment expenditure (I) ● 1. 2. 3. ● Fixed investment business fixed investment Fixed investment by the household on construction of houses Public fixed investment for fixed investment by the government inventory investment or change in stock closing stock minus opening stock

Investment expenditure = gross domestic capital formation ● ● Gross domestic capital formation = gross domestic fixed capital formation + (closing stock – opening stock) G D CF= NET DOMESTIC FIXED CAPITAL FORMATION + CONSUMPTION OF FIXED CAPITAL + CHANGE IN STOCK

Net exports X-M ● ● Net export refers to the difference between exports and imports during an accounting year Net export = export - import

Gross domestic product at market price GDP mp = private final consumption expenditure + government final consumption expenditure + Gross domestic capital formation + net export ●

National income using Expenditure method ● ● ● NNPfc= National income GDP mp = private final consumption expenditure+ government final consumption expenditure+ Gross domestic capital formation + net export NNP fc = GDP mp + Net factor from abroad – consumption of fixed capital – net indirect tax