National income is one of the most important units in the Macroeconomics book. When it comes to solving national income practicals, you just need to learn all the formulas of it. Here are the national income all formulas class 12.
Topics Discussed
Methods of Calculating National Income
Before jumping right on to the formulas, we must know the methods of calculating national Income. There are 3 methods of calculating national income:
- Value Added Method
- Income Method
- Expenditure Method
Income Method
Income method is the easiest among all the three methods. You need operating surplus, compensation of employees, and mixed-income for the Income method.
From the income method, we get NDP at fc which is also known as domestic income. Here is the formula:
NDP at fc = Operating Surplus + Compensation of Employees + Mixed Income
Operating Surplus = Rent & Royalty + Interest + Profit
Profit = Corporate Tax + Dividend + Retained Earnings
Compensation of Employees = Cash in hand + Cash in Kind + Employee social schemes
So, these are the formulas you need to learn to calculate NDP at fc (domestic income) under the income method. After calculating domestic income, you can find national income through this formula:
National Income (NNP at fc) = NDP at fc + NFIA
Expenditure Method
The expenditure method is a little trickier than the income method, but it is also very easy if you have learned the following formulas:
GDP at mp = Private Final Consumption Expenditure + Government Final Consumption Expenditure + Gross Domestic Capital Formation + Net Exports
Net Exports = Exports – Imports
Gross Domestic Capital Formation = Net domestic fixed capital formation + Depreciation + Change in stock
Change in Stock = Closing Stock – Opening Stock
With the expenditure method, we get GDP at mp as you can see above. After calculating this, you can calculate national income through this formula:
NNP at fc = GDP at mp – Depreciation + NFIA – Net Indirect Taxes
Net Indirect Tax = Indirect Tax – Subsidy
Value Added Method
The value-added method is also a very simple method but many students get confused with this method. The main reason for that is that they get confused in the formulas of the Value Added Method.
GVA at mp (GDP at mp) = Value of Output – Intermediate Consumption
Value of Output = Sales + Change in Stock
This is very simple. However many students get confused in what is GVA. GDP and GVA are same. GVA stands for Gross Value Added.
So these were the formulas of National Income. If you have any doubt, you can ask in the comment section.