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Lecture Note on National income
IMO State University Akure Study Centre Ondo State Nigeria
National Income: Concept of Measurement
Introduction:
National income is a term given to national dividend, national output and national
expenditure. In common parlance, national income means the total volume of goods and services
produced annually in a country. In other words, the total amount of income accruing to a country
economic activities in a year’s time , is known as national income. It includes payments made to all
renounces in the form of wages, interest, rent, and profit.
Definition of National income:
The definition of national income can be grouped into two classes , one the traditional definition
advanced by Marshall, Pigou and Fisher: and two modern definition
The Marshallian Definition: According to Marshall; 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 income or revenue of the country or national
dividend. In this definition the word “net” refers to deduction from the gross national income in respect
of depreciation and wearing out of machine. And to this must be added income from abroad.
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Defect of Marshallian Definition of National Income
(1) In the present day world, so varied and numerous are goods and services produced that it is
very difficult to have a correct estimation of them and consequently the national income cannot
be calculated
(2) Fear of mistake of double counting, and hence the national income cannot be correctly
estimated. Double counting means that a particular commodity or services like raw materials or
labour etc. might get included in the national income twice or more than twice. Eg a farmer sells
wheat worth #5,000 to a flour mill which sells wheat flour to the wholesaler and the wholesaler
sells it to the retailer who, in turn, sells it to the customers. If each time, this wheat or its flour is
taken into consideration, it will work out to #20,000 whereas, in actuality, there is only an
increase of #5,000 in the national income.( Note here that the middlemen are not counted).
(3) It is again not possible to have a correct estimation of national income because many of the
commodities produced are not marketed and the producer either keeps the produce for self -
consumption or exchanges it for other commodities. It generally happens, in an agriculture
oriented country like India. Thus the volume of national income is underestimated.

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The pigovian Definition: A.C Pigiou, has in this definition of national income included that income which
can be measured in terms of money. In other words, Pigou ‘National income is that part of objective
income of the commodity, including of course income denied from abroad which can be measured in
money. This definition is better than the Marshallian definition of national income in the sense that:
(i) Double counting avoided, the goods and services which can be measured in money and
included in national income.
(ii) income returned can account of investment in foreign countries is included in national
income.
Defect of Pigouvian definition of national income
(i) In the light of the definition put forth by Pigou, we have unnecessarily differentiate between
commodities which can and which cannot be exchanged for money. But , in actuality, there is no
difference in the fundamental forms of such commodities, no matter they can be exchanged for money.
(ii) According to this definition when only such commodities as can be exchanged for money are
included in estimation of national income, the national income cannot be correctly measured. For
example , a woman’s services as a nurse would be included in national income but excluded when she
worked in the home to look after the children because she did not receive any salary for it. Similarly,
Pigou is of the view that if a man carries his lady secretary the national income diminishes as she has no
longer to pay for her services. Thus the pigovian definition of national income gives rise to a number of
paradoxes.
(III) This definition is only applicable to the developed countries when goods and services are exchanged
for money in the market. According to this definition, in the backward and underdeveloped countries of
the world, where a major portion of the produce is singly bartered, correct estimates of national income
will not be possible.
Fisher’s Definition: Fisher adopted ‘consumption’ as the consumption of national income whereas
Marshall and Pigou regarded it to be production. Fisher’s definition is considered to be better than that
of Marshall or Pigou, because fisher’s definition produces an adequate concept of economic welfare
which is dependent on consumption, and consumption represent our standard of living.
Its defects:
(i) It is more difficult to estimate the money value of net consumption than that of net
production. In one country there are several individuals who consume a particular food and

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Lecture Note on National income IMO State University Akure Study Centre Ondo State Nigeria National Income: Concept of Measurement Introduction: National income is a term given to national dividend, national output and national expenditure. In common parlance, national income means the total volume of goods and services produced annually in a country. In other words, the total amount of income accruing to a country economic activities in a year’s time , is known as national income. It includes payments made to all renounces in the form of wages, interest, rent, and profit. Definition of National income: The definition of national income can be grouped into two classes , one the traditional definition advanced by Marshall, Pigou and Fisher: and two modern definition The Marshallian Definition: According to Marshall; 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 income or revenue of the country or national dividend. In this definition the word “net” refers to deduction from the gross national income in respect of depreciation and wearing out of machine. And to this must be added income from abroad. 2 Defect of Marshallian Definition of National Income (1) In the present day world, so varied and numerous are goods and services produced that it is very difficult to have a correct estimation of them and consequent ...
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