aggreagates of national income

Meaning of National Income: – Value of all final goods and services that are produced by residents in the country within an accounting year.

Example: – Value of final goods such as mobile, LED + value of final services such has telecom, health, insurance.

Note:- National income shows the performance of our economy and growth of our nation.

Circular flow of National Income

Mainly, the business sector and household sector play a vital role in the flow of national income.

The business sector produces goods and services by using the factors of production i.e., land, labour, capital and entrepreneurship.

Thereafter, provides these goods and services to the household sector for consumption.

Household sector receives the factor payment in the form of rent, wages, interest and profit and spend on consumption and investment.

Again payment for consumption goes to business sector.

Different Concepts of National Income

Gross Domestic Product (GDP) or GDP_MP : -GDP is the value of final goods and services produced within the domestic territory of a country during an accounting year.

GDP_MP : – Value of final goods + value of final services [value = market price].

GDP_MP : -GNP_MP – Net Factor Income from Abroad [NFIA].

NFIA :- NFIA is the difference between the aggregate amount that a country’s citizen and company earn from abroad – aggregate amount that foreign citizens and overseas companies earn in that country.

In other words: – factor income earned by domestic factors of production from abroad – factor income earned by factors of production of abroad.

Note: – The basis of difference between gross and net is depreciation or consumption of fixed capital.

Note: -The basis of difference between market price and factor cost is net indirect taxes [indirect taxes – subsidies].

Gross Domestic Product at Factor Cost (GDP_FC)

GDP_FC : – GDP_MP – Net Indirect Taxes

Net Indirect Taxes : – Indirect Taxes – Subsidies

Factor Cost : – Market Price – Indirect taxes + Subsidies

Market price : – Factor Cost + Indirect taxes – Subsidies

Gross National product or GNP_MP :- GNP is the market value of all final goods and services produced within the domestic territory of a country by normal residents during an accounting year including net factor income from abroad (NFIA).

GNP_MP : – GDP_MP + Net factor Income from Abroad

Note: – If Net Factor Income from Abroad (NFIA) is positive, then GNP_MP will be greater than GDP_MP

Net National Product at Market Prices or NNP_MP : -NNP_MP is the net market value of all final goods and services produced within the domestic territory of a country by normal residents during an accounting year including net factor income from abroad (NFIA) excluding depreciation.

In other words,

NNP_MP : – GNP_MP – Depreciation

NNP_MP : – NDP_MP + Net factor Income from Abroad (NFIA).

NNP_MP : – GDP_MP + Net factor Income from Abroad (NFIA) – Depreciation

Further,

Net Domestic Product at Factor Cost or NDP_FC : – NDP_FC is the net market value of all final goods and services produced within the domestic territory of a country by normal residents during an accounting year excluding net factor income from abroad (NFIA) and depreciation.

or It is sum of domestic factor incomes excluding depreciation.

NDP_FC = GDP_MP – Net Indirect taxes – Depreciation

NDP_FC = NDP_MP – Net Indirect taxes

Net National Product at Factor Cost or NNP_FC  : –

NNP_FC is the net market value of all final goods and services produced within the domestic territory of a country by normal residents during an accounting year.

or It is sum of domestic factor income and net factor income from abroad .

NNP_FC = National Income = factor income earned in domestic territory + NFIA

In addition to,

Note: – Per Capita Income : – National income/total population

Note: – Personal Income = income earned by factor of production or income received by household sector.

Further,

Methods of Measuring National Income: –

1. Value Added Method or Product method: – Under this method, we calculate the aggregate annual value of goods and services.
   • In other words, Value addition means net contribution made by enterprise
   • Value addition : – value of production of the enterprise – value of intermediate goods used by the enterprise.

Example: –

Particular	Farmer	Baker
Total production	200	400
Intermediate goods used	0	100
Value added	200	300

In addition,

2. Income Method : – production sector makes payment to factors for their services. National income is the sum total of factor incomes .

production unit pays rent for land, wages and salaried for labour, interest for capital and lastly, profit for entrepreneurship.

3. Expenditure Method: – National income is the aggregate final expenditure in an economy during an accounting year.

Enterprise can make final expenditure on the following accounts: –

1. final consumption expenditure on the goods and services produced.
2. final investment expenditure
3. expenditure that the government makes on the final goods and services produced.
4. export revenues that enterprise earns by selling its goods and services abroad.

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