Concept Of National Income

Concept of National Income It is the final figure you arrive at when you apply the measuring rod of money to the diverse apples, oranges, machines that any society produces with its land , labor & capital resources.

Final output comprises of goods & services purchased by the end consumer. Intermediate products are used as input in the production of some other products.

Gross Domestic Product (GDP) • It is the sum of money values of all final goods & services produced within the domestic territories of a country during an accounting year. • GDP measures final output & not the intermediate goods. It also excludes goods produced in previous year. • GDP (at market price)= C+I+G

Gross National Product (GNP) • Aggregate final output of citizens & businesses of an economy in a year. • GNP= GDP+ NFIA • NFIA= NET Factor Income Abroad.

Net Domestic Product • NDP= GDP- Depreciation. •

Net National Product

• NNP= GNP- depreciation • 1. NNP at market price= GNP- depreciation •

2. NNP at factor price=NNP at market price – indirect taxes + subsidies.

Real income • National income measured on the basis of some base year is called real national income.

Per capita income Per capita income = national income / total population It is income per head of a country.

Disposable income • Income which can be spent on consumption by individuals & families. • Disposable income = personal incomepersonal taxes.

Measurement of National income • Product method: it adds up the value of all final goods & services produced in the country by all industries. • calculated in 2 ways: • Final product method. • Value added method.

Income method • Steps: • 1. economy is divided on the basis of income groups. • 2. income of each of these groups is calculated. • 3.income of all earners is added including income from abroad. • 4. out of (3) income earned by foreigners & transfer payments made in a year are subtracted.

Expenditure method • Based on total expenditure in an accounting year. • Based on National income = National expenditure. • relates to: • Consumption expenditure • Investment expenditure. • Government expenditure. • Net exports

Uses of national income data • Economic planning. • Indicator of economic growth. • Helps in comparing two situations in 2 countries. • Determining the regional disparity. • Measure of economic welfare.

Difficulties in measuring the national income • • • • •

Non-monetized transactions. Unorganized sector. Multiple sources of earnings. Categorization of goods & services. Inadequate data.