Chapter 2 National Income - Part 4 Income Method

Economics Class 12
Macroeconomics

Certain Incomes not taken While Calculating Income Method

Transfer Income

It refers to any income received without providing any goods and services in return

Example - Old age pension, donation, charity

Income from Sale of Second hand goods

it is not included as amount is already covered on amount received on sale of original goods

Exception - We will take commission income of brokers on sale of second hand goods

Income from Sale of shares and debentures

Exception - We will take commission income of brokers on sale of shares and debentures

Windfall gains (Lotteries ,horse race etc)

They also do not contribute to any production activity

Payments from Past Savings (Gift tax ,interest tax, death duties)

They are part of past wealth and do not contribute to any production activity

Question 16

Calculate National Income.

 Particulars ₹  in crores (i) Mixed income of self employed 200 (ii) Old age pension 20 (iii) Dividends 100 (iv) Operating surplus 900 (v) Wages and salaries 500 (vi) Profits 400 (vii) Employers' contribution to social security schemes 50 (viii) Net factor income from abroad -10 (ix) Consumption of fixed capital 50 (x) Net indirect taxes 50

Step 1

We calculate Compensation to Employees

= wages and salaries + Employer's contribution to social schemes

= 500 + 50 = 550

Step 2

We calculate National Income

 Calculation of National Income Different Factor Incomes Operating Surplus 900 Compensation to Employees 550 Mixed Income 200 Total (Domestic Income NDP FC ) 1650 Add NFIA -10 NNP FC (National  income) 1640

What is Net Current Transfers from Rest of World

It is the difference between

Transfer Income from Rest of World to India and

Transfer Income from India to Rest of World

Example - Foreign Aids, grants, remittance from workers from outside country to their family members

Note

These are not included while calculating National income

as per Income Method

as these are Factor Income

and not transfer Income

Question 17

Calculate NNP at FC.

 Particulars ₹ in crores (i) Net current transfers  from rest of the world 80 (ii) Wages and Salaries 600 (iii) Net indirect taxes 75 (iv) Net Factor income from abroad -20 (v) Rent and interest 160 (vi) Corporation tax 40 (vii) Mixed Income of the self-employed 280 (viii) Undistributed profit 60 (ix) Dividend 20 (x) Consumption of fixed capital 120

In this question, we are not given Profit directly

We are given Dividend, Undistributed Profit and Corporation Tax

We calculate Profit by totaling all 3

Step 1

Lets Calculate Profit

= Dividend + Undistributed Profit + Corporation Tax

= 60+20+40 = 120

Step 2

 Calculation of National Income Different Factor Incomes Rent and Interest 160 Compensation to Employees 600 Profit 120 Mixed Income 280 Total (Domestic Income NDP FC ) 1160 Add NFIA -20 NNP FC (National  income) 1140