2 National Income .pdf

Business Environment PGEMP Dr. Pallavi Mody Email: [email protected] @SPJIMR Courage. Heart  Basics of National Income Accounting Gross Domestic Product (...

Business Environment PGEMP Dr. Pallavi Mody Email: [email protected] @SPJIMR Courage. Heart  Basics of National Income Accounting Gross Domestic Product (GDP) @SPJIMR Courage. Heart  Calculating National Income Total Factor Income (Income Method) = Total Spending (Expenditure Method) = Value of Total Output (Output Method) @SPJIMR Courage. Heart  Clarifying the Accounting….. GDP is the total market value of all the final goods and services produced in an economy in a given period of time. Simplified version of an economy Product Quantity Price Q*P= Value Wheat ( in kg.) 100 10 1000 Shirts 100 100 10,000 Cars 100 100,000 10,000,000 Houses 100 1,000,000 100,000,000 GDP 110,011,000 @SPJIMR Courage. Heart  Clarifying the concept… GDP is the total market value of all the final goods and services produced in an economy in a given period of time. GDP calculation includes only final goods and services to avoid double counting by using the concept of ‘Gross Value Added’ only goods and services that are paid for only goods and services that enter transaction chain of the reporting system only currently produced goods, resale of pre-owned goods to be excluded only income derived from current participation in productive activities; transfer income in form of pension, unemployment benefits to be excluded only production within geographical confines of a country that may be by citizens or foreigners @SPJIMR Courage. Heart  Clarifying the Terminologies…. The components of GDP, GNI and PCI GDP = C + I + G + NX C = Spending by households on goods and services except new houses I = Spending on capital equipment, inventories and structures by firms including household purchase of new houses G = Total government spending excluding transfer payments NX = Net Exports (Exports - Imports) GNI = GDP + NR NR = Net Receipts (Receipts – Payments) GVA= GDP + subsidies on products – taxes on products Disposable Income = GDP or GNI + Pension + Unemployment allowances– Direct taxes GDP or GNI Per capita = GDP or GNI/Population @SPJIMR Courage. Heart  What is the difference between Nominal and Real GDP? @SPJIMR Courage. Heart  Clarifying Terminologies…. Real and Nominal GDP Nominal GDP is the total market value of the final goods and services at current prices. Real GDP = Nominal GDP/ Inflation Deflator*100. Inflation deflator reflects the average change in the price level through the year. Real GDP gives the true picture of the well being of the people over the period of time, hence is used to calculate the growth rate of the economy Price of wheat Quantity of Nominal GDP Growth in Real GDP Growth in Real wheat (at current Nominal GDP (at constant GDP prices) 2019-20 prices) 2022-23 10 100 1000 1000 2023-24 20 150 3000 200% 1500 50% 2024-25 30 200 6000 100% 2000 33% @SPJIMR Courage. Heart  International Comparison The nominal GDP of each country is converted in US$ at the prevailing exchange rate  World’s Top 10 countries by GDP in 2024 (Proj) Gross Domestic Product (GDP) Population (Exchange Rate) (PPP) Country Change Country Growth Per Capita Country Per Capita Country Rank Million (%) Rank $ Trillion (%) Income $ Rank $ Trillion Income $ World 8,107 0.9 109.5 3 13,840 185.6 23,444 US 3 339 0.5 1 28.78 2.7 85,373 2 28.78 85,373 China 2 1,425 -0.02 2 18.53 4.6 13,136 1 35.29 25,015 Germany 11 83 -0.09 3 4.59 0.2 54,291 5 5.68 67,240 Japan 19 123 -0.5 4 4.11 0.9 33,138 4 6.7 54,184 India 2 1428 0.8 5 3.93 6.8 2,731 3 14.59 10,123 UK 21 67 0.3 6 3.49 0.5 51,075 9 4.0 58,880 France 22 64 0.2 7 3.13 0.7 47,359 10 3.98 60,339 Brazil 23 216 0.5 8 2.33 4.2 11,352 8 4.27 20,809 Italy 39 58 -0.2 9 2.32 0.7 39,580 13 3.3 56,905 Canada 6 38 0.8 10 2.24 1.2 54,866 16 2.4 60,495 Population Worldometer 2023 GDP Numbers - Source: IMF WEO April 2024  Clarifying Terminologies… International Comparisons GDP in $ terms at exchange rate = GDP in domestic currency/Average exchange rate during the year GDP in $ terms at PPP = GDP at exchange rate /PPP index*100 PPP Index attempts to remove the price differences for the same products in different countries GDP at PPP reflects true well being of people across the world and hence is widely used by MNCs to estimate size of the market, pricing their product and determining the remuneration structure. @SPJIMR Courage. Heart  Economic Growth of India India’s economy that remained below $500 billion till 90s Crossed $1 trillion mark in 2006 $ 2 trillion mark by 2014 $ 3 trillion mark by 2022 $ 4 trillion mark by 2024 $ 5 trillion ? The economy is poised for higher growth. @SPJIMR Courage. Heart  How can the economies improve their GDP/GNI over the long period? @SPJIMR Courage. Heart  Often Quoted Formula for Success I Take measures that improve the general business environment Political stability Rights to private property Rule of law Encouraging the entrepreneurs II Encourage Saving and Investment to create capital Domestic savings Foreign savings III Globalization and integration Free trade Free flow of finances IV Take measures that improve the quality of life Provide social infrastructure in form of Health & Nutrition and Education. Provide physical infrastructure in form of basic sanitation, transport, communication and availability of energy. @SPJIMR Courage. Heart  Summing up the important National Income concepts and their uses GDP Concept How it is Used GDP at current prices/Nominal First estimate of calculation GDP. GDP It is used as base for comparing variables: Savings as % of GDP, Exports as % of GDP, Fiscal deficit as % of GDP GDP at constant prices To estimate growth and inter period comparison Disposable income Businesses estimate the market size Per Capita Income To determine average income in the economy Gross National Income (GNI) Wider term for globalized world GNI at exchange rate Facilitates international comparison for the size of the economy GNI at PPP Comparison helps strategic decision by global businesses- investment, pricing, remuneration @SPJIMR Courage. Heart  Any Questions? @SPJIMR Courage. Heart