NET NATIONAL PRODUCT AT MARKET PRICE

Net national product at market price is the market value of the output of final goods and services produced at current price in one year of a country.If we subtract the depriciation charges from the gross national product,we shall get net national product at market price.

DEFINITION:-"Net national product or market price is the market value of the output of final goods and services produced by normal residents of an economy of depreciation and inclusive of factor income from abroad".

                                  -Peterson

Thus,net national product at market price minus depriciation.we can express net national product at M.P as under :

      Net national product at market price=Gross national product at market price-Depriciation

DIFFERENT CONCEPTS OF NATIONAL INCOME

    Let us make a detailed analysis of these concepts:-

1. Gross domestic product at market price.
2. Gross national product at market price.
3. Net national product at market price.
4. Net domestic product at market price.
5. Net domestic product at factor cost or Net domestic income.
6. Gross domestic product ay factor cost.
7. Gross national product at factor cost.
8. Net national product at factor cost or national income.
9.Factor income from net domestic product accuring to private sector.
10. Private income.
11. Personal income.
12. Disposable income.
13. Per capita income.
14. Real income.

MODERN DEFINITIONS ON NATIONAL INCOME

   Modern definitions on national income can be grouped on the following basis:-
(i).On product basis
(ii).On income basis
(iii).On expenditure basis

1. On product basis:- "A national income estimate measures the volume of commodities and services,turned out a given period counted without duplication".
                                                                -National income committee
  "National income is the loose name we give for the money measure of the over all flow of goods and services in an economy"
                      -Samuelson
  "National product is the net output of commodities and services flowing during the year from the country's productive system into the hands of the ultimate consumers or into net addition to the country's capital goods."
                                                                                                                                               -Simon kuznets
  "National product is the sum of total value of final goods and services produced by labour and wealth of a nation during a period of one year".
                                                  -Brooman
2.On income basis:-"National income is the sum of wages,rent,interest and profit or it is the sum total of the income of the factors of production ina particular period of time".
                                                                                                 -Shapiro
       "National income is the sum of all wages,salaries commissions,bouns,net income from rentals and,interest and royalties,interest income and profit".
                                                            -G.Ackley
3. On expenditure basis:-"National income is the ,sum total of personal consumption expenditure plus private domestic investment plus net foreign investment".
                                                                         -Peterson                        

KEYNES' APPROACH TO NATIONAL INCOME/NEO-CLASSICAL APPROACH

  The earlier definitions of national income do not throw much light on the factors which determine the level of income and employment at a particular time in an economy.Therfore,Lord Keynes made a departure from the earlier thinking.In his famous book,'The Genral Theories" Keyne adopted an approach which helped the aggregate analysis of income and employment.In his own words,aggregate income of an economic system lies somewhere between the value of gross national product and the net national product.Gross national product refers to the money value of final goods and services at a particular time.In his approach to national income,Keynes takes into account depreciation and obsolescence charges to arrive at national income.Moreover,according to keynes,net income equals A-U-V.

   Here A is the money value of all final goods and services produced during a given period of time in an economy.User cost,U refersto the loss of value resulting from using equipment by the entrepreneur.Supplementary cost,S refers to the other types of depreciation not included in user cost.In simple words,supplementary costs refer to depriciation in the value of capital which is beyond the power of the entrepreneur to check.Thus,from the above anlysis we can conclude that keynes had used income into two sense viz;(A-U) and (A-U-V).

FISHER'S DEFINITION ON NATIONAL INCOME

   "The national dividend or income consists solely of services as received by ultimate consumers,whether from their material or from their human environments.Thus,a piano or an overcoatmade for me this year is not a part of this year's income,but an addition to capital.Only the services rendered to me during this year by these things are income."

    The main points of criticism of fisher's definition:-

1. There are a number of consumers of a commodity and they live at different places in a country.Thus it is difficult to calculate the money value of the annual consumption.Further,the number of commodities is very large and each possesses a number of varieties.In such a situation,it is easier to find out the value of production than the value of annual consumption.

2. Durable commodities have their different periods of life for different consumers.It is difficult to allot a definite 'life' to each and every commodities produced in a country.

3. A durable consumer good may pass through the hands of a number of persons.

PIGOU'S DEFINITION ON NATIONAL INCOME

   "National income is that part of of the objective income of the community,including of course income derived from abroad,which can be measured in money."

       Pigou's definition indicates that we must count only those things and services which are objective and which are exchanged for money.This definition is superior to marshall's definition because it is free from the difficulties implicit under marshall's definition.It is a practical definition.In spite of this fact that it is simple and comprehensive definition,it is not free from criticism.

       The limitations of this definition are as following:-

1. While calculating national income,pigou includes only those goods and services which are exchanged for money.Thus,the services which a person renders to himself,and those which he performs for the sake of his family or freinds should not be regarded as part of national dividend.Thus,the definition does not provide a correct picture of the national income of a country.

2. This definition is applicable only to developed countries of the world where barter system is not found.It cannot be used to calculate of the national income of the backward and less developed countries where the barter system still occupies an important place in the economy.

MARSHAL'S DEFINITION ON NATIONAL INCOME

    "The labour and capital of a country acting on its natural resources produce annually a certain net aggregate of commodities,material and immaterial,including services of all kinds.This is the true net annual in come or revenue of the country or national dividend."

       In this definition of the word 'net'is used to indicate the net national income which can be found only after deducting the depreciation of plant and capital from the gross national income.Further,the net income due on account of foreign investment must be added to it to find out the true net annual income or revenue of the country.
    The main defects of marshall's defination are as under:-
 1. Today, a country produces a number of commodities and services whose correct evalution becomes difficult.Thus ,we cannot get an accurate estimate of the national income of a country.
 2. There are some commodities which are used more than once.Thus,ther is a possibility that the product of such commodities may be counted twice.This will give a wrong estimate of the national income.
 3. There are some commodities which do not appear in the market and they are consumed directly by the producers.This normally happens in the case of agricultural commodities.Marshall's definition fails to provide a measure for such items.

MEANING OF NATIONAL INCOME

    The national income of a country in a year is the value,expressed in monetary terms,of the net contribution of the factors of production through the production units in the country and abroad.It is therefore the monetary expression of the current flow of net final goods and services resulting from the production activities of the normal residents of a country in a year.In short,national income is the total market value of all final goods and services produced in an economy including net factor income from abroad during an accounting year.

    The significance of national income is that it is the value of the goods and services which can be used up in consumption by the residents of the country without causing a reduction in the production capacity of the country.It represents that part of the flow of goods and services generated by the production process which is produced in order to satisfy the wants of the people.

DIFFERENCES BETWEEN STATIC AND DYNAMIC ANALYSIS

            The main differences between static and dynamic analysis are:-

1.Time element:- In static economic analysis time element has nothing to do.In static economics,all economic variables refer to the same point of time.Static economy is alsocalled a timeless economy.Static economy,according to Hicks,is one where we do not trouble about dating.On the contrary,in dynamic economics,time element occupies an important role.
2. Process of change:- Another difference between static economics and dynamic economics is that static analysis does not show the path of change.It only tells about the conditions of equlibrium.On the contrary,dynamic economic analysis also shows the path of change.Static economics is called a 'still picture' whereas the dynamic economics is called a 'movie'.
3. Equilibrium:- Static economics studies only a particular point of equlibrium.But dynamic economics also studies the process by which equilibrium is acheived.As a result,there may be equilibrium or may be disequilbrium.Therefore,static analysis is a study of only equlibrium whereas dynamic analysis studies both equilibrium and disequilibrium.
4.Study of reality:- Static analysis is far from reality while dynamic analysis is nearer to reality.Static analysis is based on the unrealistic assumptions of perfect competition,perfect knowledge,etc.Here all the important economic variables like fashions,population,models of production,etc are assumed to be constant.On the contrary,dynamic analysis takes these economic variables as changeable.

SIGNIFICANCE OF CIRCULAR FLOW OF INCOME

         The significance of circular flow of income can be explained as below:-

1. It provides the clea cut picture of the working of an economy whether it is working efficently or there is any disturbance in the smooth working.
2. With the help of circular flow of income,we can study the problem of diseqilibrium.It also focusses on the ways and means to restore the position of disequilibrium.
3. The study of circular flow of icome helps to know the importance of monetary policy to bring about the equality between savings and investment in the economy.
4. The study of the circular flow of income highlights the importance of fiscal policy.
5. With the help of circular flow of income, we can judge the significance of compensatory fiscal policy.

LEAKAGES AND INJECTIONS

      LEAKAGES:-Leakage means withdrawal from the flow.When households and firms save part of their incomes it constitutes leakage.They may be in form of tax payments and imports also.Leakages reduce the flow of income.

      INJECTIONS:-Injections means introduction of income into the flow.When households and firms borrow the savings,they constitute injections.Injections increase the flow of income.Injections can take the forms of (a) investment,(b) government spending and (c) exports.So long as leakages are equal to injections circular flow of income continues indefinitely.Financial institutions or capital market play the role of intermediaries.