National Income

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. A normal resident is a person who normally resides within the country & whose centre of interest lies in the country concerned. National product implies National Income.

Concepts in National Income Gross National product (GNP MP ) Net National product (NNP MP ) Gross Domestic product (GDP MP ) Net Domestic product (NDP MP ) Gross Domestic product at Factor Cost Net Domestic product at Factor Cost Net National product (NNP FC ) Gross National product (GNP FC )

Gross Domestic product (GDP MP ) GDP MP is the market value of the final goods & services produced during a year within the domestic territory of a country. Net Domestic product (NDP MP ) = GDP MP - Depreciation

Gross National product (GNP MP ) GNP MP is the market value of the final goods & services produced during a year within the domestic territory of a country by the normal residents of a country in an accounting year. GNP MP = GDP MP + Net factor income from abroad Net factor Income is the difference between factor income (wages, rent, interest and profit ) earned by our residents from rest of the world and the factor income earned by non residents within our country.

Net National product (NNP MP ) NNP MP = GNP MP - Depriciation

Net Domestic product at Factor Cost NDP FC differs from (NDP MP ) in the following way:- NDP FC = (NDP MP )- Indirect taxes + subsidies

Gross Domestic product at Factor Cost NDP FC + Depreciation = GDP FC

Net National product (NNP FC ) NDP FC +Net factor Income from abroad = NNP FC Gross National product (GNP FC ) = NNP FC + Depreciation

Methods of measuring National Income There are three methods of measuring National Income:- 1. Income Method 2. Product method or value added Method 3. Expenditure Method

Income Method It is also called as Distributed Share Method or Factor Payment Method. It is that method, which measures national income from the side of payments made in the form of wages, rent, interest and profit to the primary factor of production i.e. labour, land, capital and enterprise respectively for their productive services in an accounting year.

Income Method National Income= Rent+ interest+ profit+ wages(also called as compensation of employees). Rent: payments made by the firms to the resident households for the use of land. It includes (i) Paid Out Rent (ii) Imputed Rent. Interest: It refers to (net) interest income received by the residents households. Profit: It has three components: (i) Dividends (ii) Corporate Profit Tax (iii) Corporate Saving or Undistributed Profits.

Income Method Compensation of Employees: It includes: (i) Wages & salaries in cash (ii) Wages & salaries in kind (iii) employer’s contribution towards social security on behalf of the employees. (iv) Retirements

Product Method or Value added Method This method is also known as Industrial Origin Method or Net Output Method. Product method is that method, which measures the national income by estimating the contribution of each producing enterprise to production in the domestic territory of the country in an accounting year. Value of final Output= Value of output- Value of intermediate goods

Expenditure Method This method is also known as Income disposable Method or Consumption and Investment Method. Expenditure Method is the method which measures the final expenditure on gross domestic product at market price during an accounting year. This total final expenditure is equal to the gross domestic product at market price.

Expenditure Method It has following Components:- 1. Private/final consumption expenditure (c), referring to the expenditure by the households on final goods & services. It has three components: (i) Private consumption expenditure on durable goods. (ii) Private consumption expenditure on non- durable goods. (iii) Private consumption expenditure on services.

Expenditure Method 2. Government final consumption expenditure(G). 3. Gross Domestic Fixed Capital Formation(F) referring to expenditure by the producers on fixed assets(including depreciation). Also known as Gross Domestic Fixed Investment. It includes:- (i)Business Fixed Investments (ii) Residential construction investment (iii) Public Investments

Expenditure Method 4. Change in stock(∆ in stock), referring to the expenditure by the producers on inventories 5. Exports (X) 6. Imports (M)

Difference between Final Goods & Intermediate Goods Final GoodsIntermediate Goods 1. These goods are outside the boundary line of production. 1. These goods are within the boundary line of production 2. These goods are ready to reach their final users, for consumption or for investment 2. These goods are used by the producers as raw material or further sale. 3. These goods are included in the estimation of national income. 3. These goods are not included in the estimation of national income.