What is National Income?

• National Income is the sum-total of factor-incomes earned by normal residents of a country during the period of one year.

• National Income is also defined as the sum-total of market-value of final goods and services, produced by normal residents of a country in one year.

Three expressions of National Income

• NY = M.V. of final goods and services• NY = sum-total of factor-incomes• NY = C+I (consumption+expenditure)

Gross Domestic Product at M.P.

• GDP is the market-value of final goods and services produced within domestic territory of a country during 1 year inclusive of depriciation

• There are both resident as well as foreign producers within domestic territory of a country

• GDP= P*Q (Here P=Market Price and Q=final goods and services)

• The term “gross” indicates that the latter includes depriciation

• Only M.V. of final goods and services is taken into account, not intermediate goods and services

• Price of goods and services refers to their prevailing M.P.

GDP does not include:

• Income from illegal activities• Black-money• Transfer-Payments• Income from monetary transactions like

from shares and debentures• Value of second hand goods• Self-consumption services

Gross National Product at M.P.• GNPmp is the market price is the M.V. of final goods and

services produced within domestic territory of a country by normal residents during a period of one year.

• GNP is a broader concept than GDP.• It includes NFYA (Net Factor Income earned from

Abroad)• NFYA= Factor-Income earned by our residents in ROW

– Factor-Income earned by non-residents in our country• GNP = GDP+NFYA• If NFYA is positive, GNP>GDP• If NFYA is negative, GNP<GDP

Relation between GDP and GNP

• Domestic Product is concerned with a given geographical territory whereas National Product can accrue in any part of the world where normal residents of country render their services.

• Therefore, National Product includes NFYA while Gross Product does not include NFYA

Net National Product at M.P

• Concept of National Product is more practical than that of Gross National Product because during the process of production of final goods and services there is some consumption of fixed-capital, also called depriciation.

• N.N.P at M.P. = G.N.P. - Depriciation

Net Domestic Product at M.P

• Net Domestic Product at M.P. is the market-value of final goods and services produced within the domestic territory of a country, exclusive of depriciation.

• NDP at M.P. = GDP – Depriciation• NDP at M.P. = NNP at M.P – NFYA

Domestic Income Or N.D.P. at F.C

• Net Domestic Income is the sum-total of factor-incomes generated within the domestic territory of a country during a period of one-year. (Domestic Income)

• NDP at F.C. = NDP at M.P – Indirect taxes + subsidies (or)

• NDP at F.C. = NDP at M.P – Net Indirect Taxes

• GDP at F.C. = NDP at F.C + Depreciation• NNP at F.C. or NATIONAL INCOME. It is

the total earning of all factors in the form of interest, wages, rent and profits and NFYA.

• NNP at F.C. = NDP at F.C. + NFYA

Gross National Product at F.C.

• GNP at F.C. is the sum total of factor incomes earned by normal residents of a country, along with consumption of fixed capital, during a year.

• GNP at F.C. = NNP at F.C. + Depriciation

National Disposable Income• National Disposable Income refers to the Net

Income at M.P. available to a country for disposal. It is the sum-total of national income NNP at F.C., Net Indirect Taxes and Net Current Transfers from the rest of the world.

• NDI= N.I.(NNP at F.C.) + Net Indirect Taxes + Net Current Transfers from ROW

• National Disposable Income is the income from all sources (earned income as well as transfer payments from abroad) available to residents of a country for consumption expenditure or for saving during a year.

Gross and Net concepts of National disposable Income

• Gross National Disposable Income includes current replacement cost, while Net National Disposable Income does not.

• Net National Disposable Income= Gross National Disposable Income – Current replacement cost (which is depriciation at the level of economy as a whole).

• Factor Income from Net Domestic Product accruing to Private Sector = Net Domestic Product at Factor Cost – Income from Property and Entrepreneurship accruing to the Government departmental enterprises – Savings of Non-departmental enterprises.

Private Income

• Private Income is the income of private-sector obtained from any source, productive or otherwise, and retained income of corporations.

• Private-Income= Factor Income from NDP accruing to pvt. Sector + NFYA + Interest on National Debt + Current transfers from Govt + Current transfers from ROW

National Income Private Income

1. It includes income both in public and private sectors of economy.

2. It includes only factor-incomes. It does not include transfers.

3. Interest on National Debt is not included in NI

1. It includes the income of only private sector.

2. It includes both factor-incomes as well as current transfers from Govt. and ROW

3. Interest on National debt is included in Pvt. Income

Personal Income

• Personal Income is the income actually received by individuals and households from all sources in the form of factor-income and current-transfers.

• Personal Income includes the income actually received by house-holds.

• Personal Income = Private Income – Undistributed Profits (or corporate saving) – corporation tax.

Private Income Personal Income

1) It is a broader concept.

2) Private Income includes corporate taxes and corporate saving.

1) It is a narrow concept.

2) Personal Income does not include corporate taxes and corporate saving.

Personal Income National Income

1) It is a concept related to receipt of income.

2) Income from domestic product accruing to Govt. constitutes a part of National Income, but not of Personal Income.

1. It is a concept related to generation of income.

2. Income from domestic product accruing to Govt does not constitute a part of National Income

Personal Income National Income

3. Personal Income includes both factor-incomes as well as transfer-payments.

4. Corporate savings and tax are not a part of personal income

3. National Income comprises of factor-incomes only

4. Corporate savings as well as corporation tax are integral components of NI

Personal Disposable Income

• Personal Disposable Income is the income remaining with individuals and households after deduction of all taxes levied against their income and their property by Govt.

• PDI = Personal Income – Direct Personal Tax – Miscellaneous receipts of Govt. Administrative Dept or miscellaneous fees and fines paid by households