National Income and its Concepts

National Income

It refers to the total income of the citizens of a country whether earned within the geographical boundary of the country or abroad for a certain period of time period usually 1 year. In brief it is the aggregate of all:

a)     Concepts of National Income:

Concepts of National Income	Definition	Formula
1. Gross Domestic Product (GDP)	It is total market value of all currently produced final goods and services withing the geography boundary of a country during the fixed period of time generally a year. In order to be included in the goods and services must be: a. Must be produced currently that year. b. Must be final goods not intermediate goods. c. Currently produced capital goods and inventories. d. Must be evaluated in the market price	p = price of the goods and services x = quantity of the goods and services
2. Gross National Product (GNP)	It is the total annual value of goods and services produced by the domestically owned factors of production. It comprises the income earned by the nationals in the foreign countries but doesn't consider domestically earned income by foreigners.	GNP= GDP + NFIA NFIA= Net factor income from abroad
3. Net National Product (NNP)	It is the net output of the economy that is calculated after deducting the value of depreciation from the GNP	NNP= GNP- D D= Depreciation
4. Net National at factor cost or National Income (NI)	It is the sum of all incomes earned by the resource suppliers for the contribution of their factor resources which go into the annual net of production.	NI= NNP- Indirect taxes+Subsidies.
5. Personal Income (PI)	It is the measure of the income received by citizens of a country from all sources in a year.	PI= NI-Undistributed Corporate Profit-Corporate Income Taxes-Social Security Taxes/Contribution+ Transfer Payments+ Net interest on public debt
6. Disposable Income (DI)	It is the actual amount received by an individual after the deduction of the direct taxes that the individuals are liable to pay to the government. It can also be concluded as the actual income that individuals can spend for consumption and saving.	DI= PI-Direct taxes DI= Consumption (C)+ Saving (S)
7. Per Capita Income	It refers to the average earning of an individual in a particular region. It helps to determine the standard of living of the countries.	Per Capita Income= National Income of a Country÷ Total Population of the Country

     

Relationship between GDP, GNP, NNP, NI, PI and DI

1.     GDP= C+I+G+(X-M)

2.     GNP= GDP+ NFIA

3.     NNP= GNP- Depreciation

4.     NI= NNP- Indirect taxes+ subsidies

5.     PI= NI- Undistributed Corporate Profits-Corporate tax- Social Security tax+ Transfer payments from government+ net interest on public debt

6.     DI= PI- direct tax