Concept of National Income

It is the final figure you arrive at when

you apply the measuring rod of money
to the diverse apples, oranges,
machines that any society produces
with its land , labor & capital
resources.
Final output comprises of goods &
services purchased by the end
consumer.

Intermediate products are used as

input in the production of some
other products.
Gross Domestic Product (GDP)
• It is the sum of money values of all final
goods & services produced within the
domestic territories of a country during an
accounting year.
• GDP measures final output & not the
intermediate goods. It also excludes
goods produced in previous year.
• GDP (at market price)= C+I+G
 Gross National Product (GNP)

• Aggregate final output of citizens &

businesses of an economy in a year.
• GNP= GDP+ NFIA
• NFIA= NET Factor Income Abroad.
 Net Domestic Product
• NDP= GDP- Depreciation.

• Net National Product

• NNP= GNP- depreciation

• 1. NNP at market price= GNP- depreciation
• 2. NNP at factor price=NNP at market price –
indirect taxes + subsidies.
 Real income
• National income measured on the basis of
some base year is called real national
income.

Per capita income

Per capita income = national income / total population

It is income per head of a country.

 Disposable income

• Income which can be spent on

consumption by individuals & families.

• Disposable income = personal income-

personal taxes.
 Measurement of National income

• Product method: it adds up the value of all

final goods & services produced in the
country by all industries.
• calculated in 2 ways:
• Final product method.
• Value added method.
 Income method
• Steps:
• 1. economy is divided on the basis of
income groups.
• 2. income of each of these groups is
calculated.
• 3.income of all earners is added including
income from abroad.
• 4. out of (3) income earned by foreigners
& transfer payments made in a year are
subtracted.
 Expenditure method
• Based on total expenditure in an accounting
year.
• Based on National income = National
expenditure.
• relates to:
• Consumption expenditure
• Investment expenditure.
• Government expenditure.
• Net exports
 Uses of national income data

• Economic planning.
• Indicator of economic growth.
• Helps in comparing two situations in 2
countries.
• Determining the regional disparity.
• Measure of economic welfare.
 Difficulties in measuring the
national income

• Non-monetized transactions.
• Unorganized sector.
• Multiple sources of earnings.
• Categorization of goods & services.
• Inadequate data.