NATIONAL INCOME

National income refers to the sum total of all the final goods and services produced in a country and net income from abroad in a year.

National income may be expressed in the following ways.

1.      Gross Domestic Product:  GDP is the total money value of all final goods and services produced within the country by the nationals of the country and by the foreigners staying in the country during a year.

Thus GDP = C +I +G +net X

Where, C= the value of consumer goods produced.

             I= the value of producer goods produced.

            G= Total Government expenditure on goods and services.

        Net X =Net exports where the value of exports is higher than the value of     imports.

2.      Net Domestic Product:  In production process, after some time capital assets need repairs and replacement.  Hence a part of the capital is set aside in the form of depreciation cost.  Net Domestic Product is the total money value of all final goods and services produced within the country less depreciation. 

NDP= C+I+G+ net X- DC or

NDP=GDP- Depreciation Cost.

3.      Gross National Product(GNP):  Gross National Product is the total money value of all final goods and services produced in a nation during a year plus income earned by its non-residents minus income earned by foreigners staying in that country.

Thus GNP = C+I+G+(X-M) +(R-P)

(R-P) is the difference between income received from abroad(R) and income paid to foreigners (P).

4.      Net National Product (NNP):  Net national Product refers to the total value of the goods and services produced in a country during a year minus depreciation cost.

NNP= C+I+G+(X-M) +(R-P)-DC

 National Income at Factor Cost:  The above equation gives us NNP at market prices.  But Market prices include indirect taxes which are paid to the government and subsidies which are paid by the government.  So to know the NNP at factor cost, we have to deduct indirect taxes and add subsidies.

NNP at factor cost= NNP at market prices-(Indirect taxes +subsidies).

5.     Personal Income (PI):  The national income of a country is distributed among the people of a country in the form of factor income.  Therefore, personal income is that part of national income of a country which is received by people or households.

PI= National income at factor cost –Undistributed corporate profits- Corporate income taxes- social security contributions( like insurance , provident fund etc.)+ transfer payments (old age pension, widow pension etc).

6.     Personal Disposable Income (PDI):  The entire personal Income which can be spent after paying direct taxes to the government is called Personal Disposable Income.

PDI =PI-Personal Taxes.

Disposable Income can either spent entirely or a part of the income can be saved; So, DPI= Consumption expenditure + Savings.

7.     Per capita Income:  Per Capita income is the average income of the people of a country.  It is the average income per head of population of a country. 

Per capita Income = National Income of a Country

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                                  Total Population