These National Income Accounting Class 12 Notes explain the concepts of national income, GDP, GNP, value added, circular flow of income and methods of calculating national income. The chapter also discusses nominal and real GDP, GDP deflator, welfare and important macroeconomic aggregates.
These NCERT notes are prepared for quick revision and competitive exam preparation, covering formulas, definitions, examples and important exam-oriented concepts useful for UPSC, SSC, CUET, State PSC, Railways and board examinations.
National Income Accounting explains how the aggregate production, income and expenditure of an economy are measured. The chapter introduces concepts such as final goods, intermediate goods, stocks and flows, investment and depreciation.
The chapter also explains the circular flow of income, methods of calculating GDP, macroeconomic aggregates like GDP, GNP, NNP and National Income along with concepts of real GDP, price indices and GDP as a measure of welfare.
These NCERT notes explain the meaning of production, final goods and macroeconomic concepts.
Economic wealth depends on:
Goods meant for final use and not for further production.
Goods used as raw materials for producing other goods.
Goods used for direct consumption.
Durable goods used in production process.
Consumer goods having long life.
These notes explain stock variables and flow variables.
Variables measured over a period of time.
Variables measured at a particular point of time.
| Basis | Stock | Flow |
|---|---|---|
| Measurement | At a point of time | Over a period of time |
| Example | Wealth | Income |
These notes explain gross investment, net investment and depreciation.
Total expenditure on capital goods.
Loss in value of capital goods due to wear and tear.
Net Investment = Gross Investment − Depreciation
Net addition to capital stock.
These NCERT notes explain how income moves between households and firms.
Continuous movement of income and expenditure between firms and households.
| From | To | Flow |
|---|---|---|
| Firms | Households | Factor payments |
| Households | Firms | Consumption expenditure |
These notes explain the three methods of measuring national income.
These NCERT notes explain value added approach to measuring GDP.
Contribution made by a firm to production.
Value Added = Value of Output − Intermediate Consumption
Value added including depreciation.
NVA = GVA − Depreciation
Stock of unsold goods and raw materials.
Change in Inventory = Closing Stock − Opening Stock
GDP = Sum of Gross Value Added + Taxes − Subsidies
These notes explain calculation of GDP using expenditure approach.
GDP = C + I + G + (X − M)
Where:
These NCERT notes explain calculation of GDP through factor incomes.
GDP = W + R + In + P
Where:
Product Method = Income Method = Expenditure Method
These notes explain the relationship between different price concepts.
Income received by factors of production excluding taxes.
Prices including production taxes but excluding product taxes.
Prices paid by consumers including indirect taxes.
Market Price = Factor Cost + Indirect Taxes − Subsidies
GDPMP = GDPFC + Net Indirect Taxes
These notes explain GDP, GNP, NNP and National Income.
Market value of all final goods and services produced within domestic territory during a year.
GNP = GDP + NFIA
NNP = GNP − Depreciation
National Income = NNP at Market Price − Net Indirect Taxes
PI = NI − Undistributed Profits − Corporate Tax + Transfer Payments
PDI = PI − Personal Taxes
National Disposable Income = NNP at Market Prices + Other Current Transfers from Rest of World
These NCERT notes explain nominal GDP, real GDP and GDP deflator.
GDP measured at current market prices.
GDP measured at constant prices.
GDP Deflator = (Nominal GDP / Real GDP) × 100
Index measuring prices of basket of goods purchased by consumers.
Index measuring wholesale prices of goods traded in bulk.
These notes explain limitations of GDP as an indicator of welfare.
Rise in GDP may benefit only a few people.
Barter transactions are not included in GDP.
Benefits or harms caused to others without payment.
Education improving social welfare.
Industrial pollution harming environment.
Net Investment = Gross Investment − Depreciation
Value Added = Value of Output − Intermediate Consumption
GDP = C + I + G + (X − M)
GDP = W + R + In + P
GNP = GDP + NFIA
NNP = GNP − Depreciation
National Income = NNP at Market Price − Net Indirect Taxes
GDP Deflator = (Nominal GDP / Real GDP) × 100
| Important Topic | Page Reference |
|---|---|
| Final and Intermediate Goods | Pages 9–11 |
| Stocks and Flows | Pages 11–12 |
| Gross and Net Investment | Pages 12–13 |
| Circular Flow of Income | Pages 14–16 |
| Product Method | Pages 17–20 |
| Expenditure Method | Pages 21–22 |
| Income Method | Pages 22–24 |
| GDP, GNP and NNP | Pages 25–28 |
| National Income | Pages 25–28 |
| Personal Income and PDI | Pages 26–27 |
| Nominal and Real GDP | Pages 29–30 |
| GDP Deflator | Page 29 |
| CPI and WPI | Page 30 |
| GDP and Welfare | Pages 30–31 |
Introduction to Macroeconomics Class 12 Notes
Money and Banking Class 12 Notes
Determination of Income and Employment Class 12 Notes
Government Budget and the Economy Class 12 Notes
Class 12 Economics Chapter 6: Open Economy Macroeconomics Notes
GDP is the market value of all final goods and services produced within domestic territory in a year.
Depreciation is reduction in value of capital goods due to wear and tear.
GDP Deflator measures price level changes in economy.
GDP Deflator = (Nominal GDP / Real GDP) × 100
Because: