Meaning And Concept of National Income - Economics Notes Grade XI

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Meaning And Concept of National Income - Economics Notes Grade XI

Meaning And Concept of National Income

Meaning of National Income
National Income is the sum of all incomes of the people of a country in a particular period of time. In other words, the monetary value of final goods produced in a country during a year is called national income. Alternatively, national income includes payments made to productive resources in the form of wage interest, rent, profit, etc. Thus,

N.I. =Wage + Rent + Interest + Profit.

National Income shows the economic condition of the country. A country with high national income is said to be a prosperous country and low is said to be a poor country.

Different Concepts of National Income

1. Gross Domestic Product. (GDP)
GDP is the sum of the money value of all final goods and services produced within the domestic territory of the country during a year. It should be noted that goods and services must be produced within the country. In order to calculate the value of GDP, all goods and services produced are multiplied by their market prices.

GDP=∑ (P X Q)

Where P= Price of goods and services.
Q= Quantity of goods and services.

In other words, GDP measures expenditures made on goods and services by consumer, businessman, government and net foreign export of a country during a year.

GDP= C + I + G + (X – M)

C= Consumption expenditure.
I= Investment expenditure.
G= Government expenditure.
X= export.
M= Import.
(X – M) = Net export.

2. Gross National Product (GNP)
GNP is the most widely used concepts among different concepts of national income. GNP is defined as the total market value of all final goods and services produced annually form a country including net factor income from abroad. Net factor income from abroad is the difference between the foreign income earned by our residents from other countries and factor income earned by foreigners from our country. The income earned by our residence from a foreign country is added and income earned by the foreign country is added and income earned by the foreigners from our country must be subtracted while measuring the GNP.

GNP= C + I + G+(X-M) +NFIA

Where, C + I + G + (X – M) = GDP
NFIA = Net factor income from abroad.

3. Net National Product (NNP)
Net National Product is the market value of all final goods and services after allowing for depreciation. When capital assets wear out or tear, they decline the value. The measure of that decrease in value due to their constant use is called depreciation. When charges for depreciation are deducted from GNP we get NNP.

NNP= GDP – Depreciation.

4. National Income (NI)
It is also known as national income at factor cost. National income at factor cost means the sum of all incomes earned by the factors of production like land, labour, capital, and entrepreneur through the participation in the production process for a period of one year. The sum of income received by factors of production in the form of rent, wage interest, and profit is called National Income.

The indirect taxes are not available to the factors of production. So, it should be deducted from NNP and subsidies are available to factors of production. So, it should be added to NNP to find NI.

NI= NNP + Subsidies – Indirect Taxes.

5. Personal Income (PI)
Personal income is the sum of all incomes actually received by all individuals of a country from all possible sources before paying direct taxes. Thus, PI = NI – Social security contribution – corporate income taxes – undistributed corporate profits + transfer payments.

6. Disposable Income (DI)
The income left after the payment of direct taxes from personal income is called disposable income. Disposable income means actual income which can be spent on consumption by an individual.

Thus, DI= PI – direct taxes.

But all the total disposable income is not spent on consumption, some part is saved. So, DI = C + S

Where, (C= Consumption and S= Saving)

7. Per Capita Income (PCI)
Per capita income of a country refers to the average income of an individual in a particular year. It is obtained by dividing the national income of the country by the total population. Thus,

PCI of the year = National Income of Year / Total population of Year

PCI of the people is useful to compare people’s standard of living in different countries.

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