MEASUREMENT OF NY BY EXPENDITURE METHOD

                                             
MEASUREMENT OF NY BY EXPENDITURE METHOD

 Date: 01.05.2020

                    Expenditure method is that in which measured over all expenditure of a Nation at market price during an accounting year.

Final expenditure consists of expenditure on final consumption expenditure by Household and general government and investment expenditure by producing sector. Total expenditure by the economy equal to the Gross domestic product at Market Price.

Different steps involves to calculate NY by Expenditure method: -

A. IDENTIFICATION AND CLASSIFICATION OF  ECONOMICS UNITS INCURRING FINAL EXPENDITURE: -

1. Household sector,

2., Government sector

3. Producing sector,

4. Rest of the world sector

B. CLASSIFICATION OF FINAL EXPENDITURE: -

1.Final expenditure includes Private final consumption expenditure done by the household and Non- profit institutes serving household on durable goods, semi durable goods and non durable goods.

2. Final consumption expenditure by government: --

   1. Compensation of employee paid by govt.

2. Goods and services purchase by govt.

3. Govt. purchase from rest of the world.

 C. Gross Domestic capital formation: -

   (i) Expenditure on construction

(ii) Final expenditure on machines and Equipment.

 For making Gross domestic capital formation, includes: -

(a) Expenditure on change in stock

(b) Expenditure on acquisition of valuables.

3. NET EXPORT- It the different export of goods and service s and import of goods and services.

IV . Estimation of net factors income from abroad.

V. Estimation of Gross Domestic product at MP: -

    PFCE + GFCE + GDCF + NET EXPORT + NFIA

 FROM GDP at MP - DEPRICIATION - NIT

= NDPat FC

NNP at FC = NDP at FC + NFIA =  NNP at FC

PRECAUTIONS: -

1.Expenditure of second hand goods should not included.

2. Expenditure on intermediates goods and services should not included.

3. Expenditure on shares and bonds should not included.

4. Value of depreciation should not be included.

4. From GDP at MP deduct NIT.

.........................................................................................................

      Home Work:- 
Explain the different steps invokes in calculation of NY by Value added methods, Income and Expenditure method , Explain them briefly.

  

                    

NUMERICAL OF VALUE ADDED

                                                                              DATE: 30.04.2020
 HOME WORK FOR ALL READERS PLEASE :

1. CALCULATE GROSS VALUE ADDED AT FACTOR COST: -

SR. NO.	PARTICULAR	RS. IN LAKHS
1	SALE	70
2	INTERMEDIATE CONSUMPTION	40
3	OPENING STOCK	15
4	CLOSING STOCK	10
5	SUBSIDIES	5
6.	PURCHASE OF MATERIALS	25
7	DEPRICIATION	15
8	WAGES AND SALERIES	10

2. Calculate Value added at factor cost from the following :-

Sr.No.	PARTICULARS	RS. IN LAKHS
1	Purchase of Raw material	30
2	Depreciation	12
3	Sales	200
4	Excise Tax	20
5	Opening stock	15
6	Intermediate consumption	48
VII	Closing stock	10

3. Calculate Gross Value at FC from the following data:-

     2. Calculate Gross Value added at factor cost from the following :-

Sr.No.	PARTICULARS	RS. IN LAKHS
1	Net indirect taxes	20
2	Purchase of intermediate product	120
3	Purchase of machines	300
4	Sale	250
5	Consumption of fixed capital	20
6	Change in stock	30

     2. Calculate Net Value added at Market Price  from the following :-

Sr.No.	PARTICULARS	RS. IN LAKHS
1	Depreciation	5
2	Sales	100
3	Opening stock	20
4	Intermediates consumption	70
5	Excise duty	10
6	Change in stock	(-) 10

Calculation will be discuss tomorrow.

MEASUREMENT OF N Y BY INCOME METHOD

MEASUREMENT OF N Y BY INCOME METHOD

                             

During production of goods and services , firm sector hiring  the services of factor of productions (Land, Labour, Capital and Entrepreneur) and in returns to their services paying Rent, Interest, profit and Compensation of employee. From the producers side it is payment and from factor side it income. That's why ,Sometime this methods is called 'Factor payment methods' and 'Distributed share method'

'National Income is the sum total of factor income earned by normal resident of country during an accounting year by working both within and outside the country'

Different steps: -

A. Identification & Classification of factor income : -

Factor income divided into three group : -

1. Compensation of employee : - It includes wages and salaries in cash and kind, employer's contribution to social security scheme, pension of retirement .

2. Operating Surplus: - Rent , royalty, interest and profit. Profit include Corporation tax, dividend and saving of companies ( Undistributed profit)

3. Mixed income: - This is the income of self employed person like, small shopkeeper, barber, Lawyer , private doctors etc.

B. Calculation of Net Domestic product at FC or Domestic income: -

     NDP at FC = Compensation of Employee  + Operating Surplus + Mixed Income

C . Estimation of Net National Income at FC OR National Income: -

   Sum of Net Domestic product at FC and Net Factor income from abroad is equal to Net National product at factor cost or National income of the country,

 Net factor income from abroad: - It is the difference between income earned residents of a country from outside country and income earned by foreigner in the same country.

This is consists of three (i) Net Compensation of employee from abroad. (ii) Net income from property and entrepreneurship (iii) Net retained of the companies at abroad.

Precautions : -

The following should not included in the calculation of National Income by income method: -

1. Value of intermediate goods is not included.

2. Income from the sale of second hand good is not included.

3. The Value of illegal activities or goods and services not included.

4.The value of leisure time activity .

5. Income from the sale of second hand goods not included.

6.. Windfall gains should not be included.

7. Indirect taxes not included when NY calculated at FC but when it is calculated at MP than IT included in the Calculation.and corporate tax and income tax

The following activities should be included in the calculation of NY by income method:

1. Imputed rent of owner occupied houses.

2. Broker's income from the sale of second hand goods or Commissioned from the sale of share and bonds.

3. Imputed value of self consumption goods.

                                         THANKS 

                                                                                  RAMESH KUMAR,

                                                                                  PGT (ECO.)

                                                                                  KV FARIDKOT CANTT

                                                                                      

NATIONAL INCOME AT A GLANCE BY INCOME METHOD

FORMULA 

COMPENSATION OF EMPLOYEE

+

OPERATING SURPLUS

+

MIXED INCOME SELF EMPLOYED

=

NET DOMESTIC PRODUCT at FC

+ 

NFIA

= 

 NET NATIONAL PRODUCT at FC

OR

 NATIONAL INCOME

;-  

MAY I HELP YOU.

          Students may ask questions regarding the topic discussed  today

PROBLEM OF DOUBLE COUNTING

PROBLEMS OR DIFFICULTIES IN THE MEASUREMENT OF NATIONAL INCOME BY VALUE ADDED METHODS

PROBLEM OF DOUBLE COUNTING

While estimating NY  with Value Added Methods. there may arise a problems of double counting , Problem of double counting is the problem of estimation the value of goods and services twice or more than twice.

When a good is producing, it goes in different stages and value of that goods increases at each stage, and  there is always a chance to increase the value of good and increased value may count double in calculation of NY.

Example : - Suppose a farmer produces one quintal of Wheat of Rs.2000/- and sold to a floor mill owner and farmer has no intermediate cost, Flour mill converted wheat into flour and sold to Baker for Rs.3000/- , his intermediate cost is Rs.Rs.1000/- (Rs.3000 - 2000 = 1000/- ) Baker converted that flour into breads and sold to consumers for Rs. 5000/- , so he earned Rs. 3000/- from the sale of the bread.

Wheat for farmers is final good, flour is final product for flour owner and bread is final product for baker.

Gross Value of output = 2000+ 3000+ 5000 = 10000/-

Value of intermediate good is = 0+ 1000+ 3000= 4000

Net Value added = 10000- 4000 = 6000/- ( Rs Six thousands.)

Every producers treat his product final and there are chances that may create a problem of double counting.

How to avoid double counting?

1. (i) Final output methods - Only the value of final goods is to be added in NY. Value of  final output can be calculated by deducting intermediates from the Value of output

2. Value added method: -  Value added method refers to the difference between Value of output and value of IC of each producing units of the country. Sum total of Value added contributed by each level of production by producing units should be added to the National income

     So in the way we can avoid double counting.

THANKS

SOME BASIC CONCEPTS OF MACRO ECONOMICS

                                        SOME BASIC CONCEPTS OF MACRO ECONOMICS

                                                                                                    •PRESENTED BY:

RAMESH KUMAR,

PGT (ECONOMICS)

K V FARIDKOT CANTT

•

•THERE ARE DIFFERENT CONCEPTS OF MACRO ECONOMICS

•1. Factor income,

•2. Transfer Income,

•3. Current Transfer,

•4. Capital transfer,

•5. Stock,

•6. Flow,

•7.Normal resident,

•8.Final goods and

•9. Intermediate goods.

•10. Gross Investment and 

11. Depreciation.

•                                                 EXPLANATION OF CONCEPTS

•1. Factor income: - Income earned by factors of production during production process by rendering their services. It is bilateral concept.

•2. Transfer Income: - Income received without rending any services. Like scholarship, old age pension and unemployment allowance.

•3. Current Transfer:- Transfer made from the income of the payer and added to the income of recipient for consumption expenditure.

•4. Capital transfer: Capital Transfer are those transfer which are made from the saving of the payers for investment purpose.

•5. Stock: - Any economic variable is measured at a point of time like water in the tanks, money in bank account, distance and money supply etc. It is static concept.

•6.Flow:- Any economic variable which is calculating  during period of time is called Flow variable. Water in river, spending of money, Export and import etc

•7.Normal resident: -  It may be person or institute, who resides more than one year. His / Her  centre of interest lies in  domestic territory of a country. He done all his economics activities from that  country

•8.Final goods :- Final goods are those goods, which are out off production boundary and ready for consumption or you. These goods or services have values, or Price.

•9. Intermediate goods: - Intermediate good are those goods which are not the final goods, but these good help to produce other goods like - sugar cane help to made sugar, leather for shoes, thread for cloths.

•10. Gross Investment : -

•Gross Investment is addition to the stock of capital or capital equipment before making allowance for deprecation.

•It raise the productive capacity of goods and services.

•However investment should not confused with finacials investment , because F I is only transfer of ownership right from one person to another like, shares, bonds, debentures, an old house.

11.  Depreciation : - 

•Depreciation or Consumption of fixed capital is loss in value of fixed capital due to normal wear and tear or change in technology. It is also called ‘capital consumption allowance’. Loss of fixed assets is attributed due to following reasons: -

•(i) Regular wear and tear,

•(ii) Natural rate of accidental damages,

•(iii)  Foreseen obsolescence.

•

•Home work

•1. What is meant by factor income and transfer income?

•2.  What are the Current transfer and capital transfer?

•3. What is means by stock and flow?

•4. What is meant by resident? 

•5. What is production boundary?

•6. What is meant by Gross investment?

•7. What are reasons for consumption of fixed capital.

•