Ch. 7

• Goods and services produced in the economy are considered for national income calculation
• The value of intermediate goods or raw materials is not considered in national income calculation
• Net aggregate value


  National income includes net value of goods and services produced and does not include depreciation cost
• Net income from abroad


  National income includes net income from abroad i.e. difference between export value and import value (X-M) and net difference between receipts from abroad and payments made abroad (R-P)
• Financial year


  National income is always expressed with reference to a time period. In India, it is from 1st April to 31st March
• Flow concept


  National income is a flow concept as it shows flow of goods and services produced in the economy during a year
• Money value


  National income is always expressed in monetary terms. It represents only those goods and services which are exchanged for money
• Circular flow of income is the basic concept in macroeconomics
• Circular flow of income refers to the process whereby an economy's money receipts and payments flow in a circular manner continuously through time
• Circular flow of income can be determined for Two sector Economy, Three sector Economy, and Four Sector Economy
• Two sector Economy formula: Y=C+I
• Three sector Economy formula: Y=C+I+G
• Four sector Economy formula: Y=C+I+G+(X-M)
• Factors of production flow from households to firms in the circular flow of income
• Goods flow from households to firms and from firms back to households in the circular flow of income
• Money flows from firms to households in the form of factor payments and from households back to firms in the circular flow of income
• Production generates factor income, which is converted into expenditure in the circular flow of income
• The flow of income continues as production is a continuous activity due to never-ending human wants, making the flow of income circular
• Green GNP

  An indicator of sustainable use of natural environment and equitable distribution of benefits of development
• Gross National Product does not take into consideration the cost in terms of (i) Environmental pollution, (ii) Depletion of natural resources caused by production of output
• Mere increase in GNP will not reflect improvement in quality of life, when it increases environmental pollution or reduce available resources for future generations
• Sustainable economic development

  Development which should not cause environmental degradation (pollution) and depletion of natural resources
• Equitable distribution of benefits


  Benefits of development are distributed fairly
• Promotes economic welfare


  Promotes long-term economic welfare for a long period of time
• Green GNP = GNP - (Net fall in stock of natural capital + pollution load)
• Characteristics of Green GNP

  • Sustainable economic development
  • Equitable distribution of benefits of its development
  • Promotes economic welfare for a long period of time
• Economic growth is an increase in real national income over time