National Income – Meaning & Measurement Concepts

National income statistics help to understand size and performance of an economy.

1. Meaning of National Income

National income is the money value of all final goods and services produced by normal residents of a country during a year.

In practice, many related concepts are used.

2. Important Concepts

(a) Gross Domestic Product (GDP at market price)

Money value of all final goods and services produced within the domestic territory of a country during a year.

(b) Net Domestic Product (NDP)

NDP = GDP − Depreciation (consumption of fixed capital)

(c) Gross National Product (GNP)

GNP = GDP at market price + Net factor income from abroad (NFIA)

(d) Net National Product (NNP)

NNP = GNP − Depreciation

(e) National Income (at factor cost)

National Income (NI) = NNP at factor cost (NNP at market price − indirect taxes + subsidies)

(f) Personal Income (PI)

Income actually received by individuals and households from all sources before direct tax.

(g) Disposable Income (DI)

Income available to households after paying direct taxes.

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3. Methods of Measuring National Income (Overview)

1. Product (Value Added) Method

• Sum of value added at each stage of production.
• Suitable for industrial and agricultural sector.

2. Income Method

• Sum of factor incomes: wages, rent, interest, profit, mixed income.
• Suitable where income data available.

3. Expenditure Method

• Sum of final expenditures on goods and services.

NI (at market price) = C + I + G + (X − M)

Where:

• C = Private final consumption expenditure.
• I = Gross domestic capital formation.
• G = Government final consumption expenditure.
• X − M = Net exports.

4. Quick Revision Points

• National income measures total output/income of residents.
• Understand GDP, NDP, GNP, NNP, NI, PI, DI.
• Three methods: product, income, expenditure.

5. Quiz Time 🎯

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