1. Capital gains arise when a capital asset such as a house, other property, stocks or shares, etc. is sold at higher price than was paid for it at the time of purchase.
2. Capital gains are excluded from national income.

National Income is a measure of the total value of the goods and services (Output) produced by an economy over a period of time (normally a year).

Per capita income = \(\frac{National\ Income}{Population}\)

(i) Farmers keep a large portion of food and other goods produced on the farm for self consumption.
(ii) This amount varies from person to person.
(iii) The problem is whether this unsold portion should be included in NI or not.

(i) NNP is obtained deducting the value of depreciation from GNP.
(ii) NNP = GNP - depreciation allowance.

1. Imputed value of rent for self occupied houses or offices is to be included.
2. Imputed value of services provided by owners of production units (family labour) is to be included.

1. Transfer payments are not to be included in estimation of national income as these payments are not received for any services provided in the current year such as pension, social insurance etc.
2. The receipts from the sale of second hand goods should not be treated as part of national income as they do not create new flow of goods or services in the current year.
3. Windfall gains such as lotteries are also not to be included as they do not represent receipts from any current productive activity.
4. Corporate profit tax should not be separately included as it has been already included as a part of company profit.

(1) Value of final consumer goods and services produced in a year to satisfy the immediate wants of the people which is referred to as consumption (C);
(2) Gross private domestic investment in capital goods consisting of fixed capital formation, residential construction and inventories of finished and unfinished goods which is called as gross investment (I);
(3) Goods and services produced or purchased by the government which is denoted by (G) ; and
(4) Net exports of goods and services, i.e., the difference between value of exports and imports of goods and services, known as (X - M)
(5) GNP at market prices means the gross value of final goods and services produced annually in a country plus net factor income from abroad (C + I + G + (X - M) + (R - P)).

(i) The total expenditure incurred by the society in a particular year is added.
(ii) It includes personal consumption expenditure (C), net domestic investment (I), Government expenditure on consumption and capital goods (G) and net exports (X - M).
\(\mathrm{GNP}=\mathrm{C}+\mathrm{I}+\mathrm{G}+(\mathrm{X}-\mathrm{M})\)
(iii) Second hand goods, purchase of shares and bonds, transfer payments and expenditure on intermediate goods must not be included.

(i) It is the total of income payment made to factors of production.
(ii) From the money value of NNP at market price, we deduct indirect tax and add subsidy.
(iii) \(\mathrm{NNP}_{\mathrm{FC}}=\mathrm{NNP}_{\mathrm{MP}}-\) Indirect taxes + Subsidies

1. There are a number of inputs that are included into a production process when producing goods and services. These inputs are commonly known as factors of production and include things such as land, labour, capital and entrepreneurship.
2. Producers of goods and services incur a cost for using these factors of production. These costs are ultimately added onto the price of the product.
3. The factor cost refer to the cost of production that is incurred by a firm when producing goods and services.
4. Examples of such production costs include the cost of renting machines, purchasing machinery and land, paying salaries and wages, cost of obtaining capital, and the profit margins that are added by the entrepreneur.
5. The factor cost does not include the taxes that are paid to the government since taxes are not directly involved in the production process and, therefore, are not part of the direct production cost.
6. However, subsidies received are included in the factor cost as subsidies are direct inputs into the production.

The following are some of the concepts used in measuring national income.
1. GDP
2. NNP
3. NNP at factor cost
4. Personal Income
5. Disposable Income
6. Per capita Income
7. Real Income
8. GDP deflator
Gross Domestic Product (GDP)
GDP is the total market value of final and services produced within the country during a year. This is calculated at market prices and is known as GDP at market prices.
Net Domestic Product (NDP)
1. NDP is the value of net output of the economy during the year. Some of the country’s capital equipment wears out or becomes outdated each year during the production process. Gross National Product (GNP)
2. GNP is the total measure of the flow of final goods and services at market value resulting from current production in a country during a year, including net income from abroad.
Net National Product (NNP)(at Market price)
Net National Product refers to the value of the net output of the economy during the year. NNP is obtained by deducting the value of depreciation, or replacement allowance of the capital assets from the GNP.
NNP at Factor cost
NNP refers to the market value of output. Whereas NNP at factor cost is the total of income payment made to factors of production.
Personal Income
Personal income is the total income received by the individuals of a country from all sources before payment of direct taxes in a year. Personal income is never equal to the national income, because the former includes the transfer payments whereas they are not included in national income
Disposable Income
1. Disposable Income is also known as Disposable personal income. It is the individuals income after the payment of income tax. This is the amount available for households for consumption. Per Capita Income.
2. The average income of a person of a country in a particular year is called Per Capita Income. Per capita income is obtained by dividing national income by population.
Real Income
Nominal income is national income expressed in terms of a general price level of a particular year in other words, real income is the buying power of nominal income.
GDP deflator
GDP deflator is an index of price changes of goods and services included in GDP. It is a price index which is calculated by dividing the nominal GDP in a given year by the real GDP for the same year and multiplying it by 100.

Introduction:
National income can be measured by the social accounting method. Under this method, the transactions among various sectors such as firms, households, government are recorded and their interrelationships traced.
Firms:
undertake productive activities. They employ factors of production to produce goods and services.
Households:
Households are consuming entities. They represent the factors of production, who receive payment for services rendered by them to firms. (i) Households consume the goods produced by the firms. There is a circular flow of money between these two groups.
Government:
The Government sector refers to the economic transactions of public bodies at all levels-centre, state and local. Their purchases may be financed through taxation, public borrowings. The government provides public health, education. They satisfy the collective wants of society. But Post Offices and railways are separated from the Government sector and included as "Firms".
Rest of the world:
It relates to international economic transactions - income, export, import external loan transaction, and allied overseas investment income and payments.
Capital sector:
(i) Capital sector refers to saving and investment activities. It includes the transactions of banks, insurance corporations, financial houses. These are not included under "Firms".
(ii) The economy is also divided into primary, secondary tertiary and quaternary sectors.
Conclusion:
The social accounting framework is useful for economists as well as policy makers, because it represents the major economic flows and statistical relationships among various sectors of the economic system. It is possible to forecast the trends of economy more accurately.

Introduction:
(i) In India there exists a large unorganized and non-monetised subsistence sector where barter system prevails. So proper valuation of output is very difficult. The difficulties are:
Transfer payments:
(i) Government makes transfer payments like pensions, unemployment allowance, subsidies. They are not included in national income because they are paid without adding anything to the production processes.
Difficulties in assessing depreciation allowance:
(i) High degree of judgement is needed to assess the depreciation allowances and accidental damageś, repair and replacement charges.
Unpaid services:
(ii) Housewife's services like preparation of meals, bringing up children are not directly included in national income. But such services performed by paid servants are included in NI. Rendering services to their friends, painting, singing, also cannot be measured in monetary terms. It is done out of love.
Income from illegal activities:
(i) Income from illegal activities like gambling, smuggling is not included in national income.
(ii) Though these activities have value yet they are not considered as productive from the society point of view.
Production for self - consumption and changing price:
(i) Farmers keep a large portion of food and other goods produced on the farm for self consumption
(ii) The problem is whether that part of the produce which is not sold in the market can be-included in NI or not.
(iii) National income by product method is measured by the value of final goods and services at current market prices. But prices do not remain stable.
Capital Gains:
(i) The problem also arises with regard to capital gains. They must be excluded from NI.
Statistical problems:
(i) There are statistical problems too. Reliable data are not adequate.
(ii) Different languages, customs also create probléms.
(iii) Indians are non-cooperative and indifferent to the official inquiries.
(iv) Statistical staff are untrained and inefficient.
(v) Double counting must be avoided.
Conclusion:
(i) Therefore, national income estimates in our country are not very accurate or adequate. There is at least 10 % percent margin of error.