NATIONAL INCOME
Dr. Mahendra [Link]
DEFINITION
What is National Income?
It is a sum total of factor incomes accruing to normal
residents of a country within an accounting year.
Central Statistical Organization: - “National Income is
the sum total of factor incomes earned by the normal
residents of a country in the form of wages, rent, interest
and profit in an accounting year”.
Prof. Kuznets: - “The sum total of the market value of
final goods and services, produced by normal residents of a
country in one year is known as national product
the total value of final outputs which comprises of
goods and services produced by a country for a
particular period of time, usually a year
CONCEPTS OF NATIONAL INCOME
GDP at Market Price
Money value of the final goods and services produced
within the domestic territory of a country during a year.
Consumer goods, capital goods. goods and services
produced by the government
Gross National Product (GNP at MP)
Gross National Product, is the value of all final goods
and services produced by all sectors of the economy plus
net factor income from abroad.
Only final goods
Intermediate goods are excluded
Value added method
Net Domestic Product at Factor Cost
Gross Domestic product at Factor Cost
GDP at factor cost or domestic income is the
income earned by the factors of production in the
form of wages, rent, interest etc within the
territorial limit
Net Domestic Product at Factor Cost
GDP at factor cost or domestic income is the
income earned by the factors of production in the
form of wages, rent, interest etc within the
territorial limit- Depriciation
NET NATIONAL PRODUCT
GNP at market price – Depreciation = NNP at
market prices
Net National Income at Factor Cost
It is the sum total of all income payments made
to the factors of production
All wages ,salaries + Interest paid to private
individuals + Net rent of all individuals + Net
profits – Transfer payments
PERSONAL INCOME
Personal income is the total of incomes received
by all persons from all sources, It consists of
wages and salaries, interest rent and dividends
received by individuals
PI= NI-(corporate profits+ employer contribution
to social insurance+ Transfer payments +
Business transfer payments+ Net interest paid
by government + Interest paid by consumers+
Dividends
Disposable Income = Personal Income-Personal
taxes
MEASUREMENT OF NATIONAL INCOME
NI can be measured using 3 common
approach
a) Income approach
b) Output approach
c) Expenditure approach
INCOME APPROACH
National Income is the total money values of all
incomes received by productive persons and
enterprises in the country during the year.
It is the total income of all factors of production
including the income of self-employed person,
labourers, capital and land
National Income = Compensation to Employees
(Wages) + Rents + Interest + Proprietor’s Income
+ Corporate Profits
OUTPUT APPROACH
In this method, national income is measured as a
flow of goods and services. We calculate money
value of all final goods and services produced in
an economy during a year.
Final goods here refer to those goods which are
directly consumed and not used in further
production process.
EXPENDITURE METHOD
The expenditures approach to the GDP
recognizes that there are four possible uses for
the output of an economy in any given year. The
output can be purchased by private households,
by businesses, by the government, or by the
foreign sector
GDP = C + I + G + X –M
