Concept and definition of National Income

It refers to money value of the flow of goods and services available annually in an economy

Three different ways of defining national Income value of output of the period which is available

for direct utilisation by individual consumers Sum of the incomes earned during the period

from supplying of factor units for the use of production

equal to the total consumption and savings of all persons and institutions during a given period

Gross Domestic Product

GDP is the sum of money value of all final goods and services produced within the domestic territories of a country during an accounting year. It includes income from exports and payment made on imports during the year. It does not include the earnings of nationals working abroad and also earnings of foreign nationals working in our country

GDP measures final output and not intermediate products

GDP at Market price – GDP + indirect tax –Subsidies

GDP at factor cost – GDP at Market price – Indirect Tax + Subsidies

Gross National Product

It is the aggregate final output of citizens and business of an economy in a year.

GNP = GDP + NFIANET DOMESTIC PRODUCT Net refers to exclusion of that part of output

which represents depreciation, wear and tear and replacement during the year of accounting

Net Domestic Product = GDP – Depreciation

Net National Product = GDP – Depreciation + NFIA

or NNP = GNP - Depreciation

Real and Nominal National Income

National income is obtained by multiplying the output of goods and services by their price.

There are two Two practices that is either current or constant price is used.

Current price are prices prevailing in the year in which national income is calculated

National Income calculated at prevailing price is called nominal National Income

National income measured on the basis of some fixed price, say price prevailing at a particular point of time, or taking a base year, it is known as national income at constant price or Real National income

Per Capita IncomeIt is the income per head of a country for a

year.

Personal disposable income PERSONAL INCOME – PERSONAL TAX

Measurement of national income

PRODUCT METHOD Economy is divided on the basis of industries The physical units of output are then

interpreted in money terms that is by taking market price of all products

The total values thus obtained are added up The indirect taxes are subtracted and

subsidies are added. This gives GDP The Net value is calculated by subtracting

depreciation

Income Method

National income at factor cost means national income calculated by income method

According to income method, it is the net income received by all citizens of a country in a particular year that is added up ie total of net rents, net wages, net interest and net profits. It is GDP at factor cost

Now if the money sent by the citizens of the nation from abroad is added and deduct the payments made to foreign nationals

Economy classified on the basis of income group

Income of each group is calculated Income from all groups , including

income from abroad and undistributed profits

Expenditure Method

According to expenditure method According to expenditure method, the total expenditure incurred by the society in a particular year is added together to get the national income.

Consumption – Payments of households to goods and services

Investment Expenditure – Capital spending includes purchase of new materials and equipments by the firm

Residential Construction includes new housing units and renovation of existing structures

Inventory investment ( unsold portion of ouput) Government Expenditure Net exports

Uses of National Income Data

Economic Planning Comparing the situations of economic

growth in two different countries Determining the regional disparities Measure of economic growth