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Important Topics: General Studies - Economy (Basic Economy)

Civil Services Preliminary Examination
(Basic Economy)

[N.B.: The study of Basic Economy will help the aspirants to develop better understanding of up going subject matter and further study as well as they shall be able to get many questions based on it. ]

In brief, Economy is the study of economic behaviour and activities of human being aimed at satisfying their needs and wants. Broadly it is divided into two main branches:-

1. Micro Economics Study: It deals with the economic behaviour of the individuals like Consumption, Demand, Supply and Businesses.
2. Macro Economic Study: It refers to the study of economic behaviour of masses as a whole like National Income, Employment, Poverty, Inflation etc.

Concepts of National Income

National Income of a country is defined as the total value of goods and services finally produced by the nationals of that country over a period of time i.e., one year. (Normally for a financial year which is in India 1st April to 31st March.) In order to estimate National Income first the GDP is estimated. Gross domestic product. It is expressed as the gross value of goods and services finally produced within the domestic boundary of a country over a period of time i.e. one year.

Hence, income from outside of country is not been included in GDP when it is included, we get GNP means Gross National Product.

It could be expressed as:-
GNP = GDP + (X - M)
Here X = Income earned from abroad.
M = Income earned by foreigners.
So, X - M = Net income from abroad.

[N.B. Question based on this equation is to be discussed]

Dividing National Income by current total population, we get:-

Per Capita Income (PCI) = National Income

Total Population

Methods of Estimating National Income

Three such methods are considered:-
(1) Production Method
(2) Income Method
(3) Expenditure Method

In India the combination of (1) and (2) is adopted while the use of 3rd is negligible due to lack of sufficient data. Under expenditure method, the following formula is used:-

National Income = C + I + G + (X - M)
Here, C = Total Consumption Expenditure
I = Total Investment Expenditure
G = Total Govt. Expenditure
X - M = Net Income from abroad

Estimation of National Income in India

» Dadabhai Naroji was the first man who did it in 1868.
» Prof. V.K.R.V. Rao was the first man who adopted scientific method (which is now in practice) for the purpose.
» In 1949 National Income Committee was set up and its chairman was Mr. P.C. Mahalanobis.
» Today Central Statistical Organisation (C.S.O.) is playing key role in this connection. It has divided the entire economy broadly in three sectors:-
(1) Primary Sector (Ag. Sector)
(2) Secondary Sector (Ind. Sector)
(3) Tertiary Sector (Service Sector)

Courtesy: Mr. LS Mishra

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