Page 216 - DECO405_MANAGERIAL_ECONOMICS

Unit 13: Basic National Income Concepts

Now we have to recognise that part of income is spent on taxes and that the private sector Notes
receives net transfers (TR) in addition to national income.
Disposable income (YD) is thus equal to income plus transfers less taxes

YD Y + TR – T (6)
Disposable income is allocated to consumption and saving
YD C + S (7)
Combining identity (6) and (7) allows us to write consumption as the difference between income
plus transfers minus taxes and saving.
C + S YD Y + TR – T (8)
Or C YD – S Y + TR – T – S (8a)
Identity (8) states that consumption is disposable income less saving or that consumption is
equal to income plus transfers less taxes and saving. Now we use the right hand side equation
(8a) to substitute for C in identity (5).
Y Y + TR – T – S + I + G +X

Or Y - Y + S – I (G + TR – T) + X
Or S – I (G + TR – T) + X (9)
The term (G + TR - T) in equation (9) is the government budget deficit. (G + TR) equals government
purchases of goods and services (G) and government transfer payments (TR) which is total
government spending. T is the amount of taxes received by the government, the difference
(G + TR – T) is the excess of government. Spending over its receipts or its budget deficit. The
second term on the right hand side is the excess of exports over imports or the net export of
goods and services.

Thus, identity (9) states that the excess of saving over investment (S – I) of the business sector is
equal to the government budget deficit plus the trade surplus.

Task From the following data, find (a) National Income, (b) NNP, (c) GNP, (d)
personal disposable income, (e) personal income, (f) personal saving.
Rupees (crores)
Capital consumption allowance 356.4
Wages and compensation of employees 1866.3
Interest paid by business 264.9
Indirect business of persons 34.1
Corporate profits 164.8
Income of self employed 120.3
Corporate dividends 66.4
P.F. contributions 253.0
Personal taxes 402.1
Interest paid by consumers 64.4
Interest paid by government 105.1
Government and business transfer 374.5
Personal consumption expenditure 1991.9

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