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Hello guys!
Hope, you'll would be fine and in good health. Well, i couldn't write blog earlier, due to my busy schedule. The blog, i'm about to write is about National Income. In this blog, i'm going to discuss concept of national income. Let's just begin.
What is National Income
"A measure of the money value of total flow of goods and services produced in an economy over a specified period of time".
National income can be regarded as the money value of the total volume of goods and services or the total of income derived from economics activities during specific period, generally it is one year, or you can say that consumption and capital expenditure by the people and government at home or abroad.
These are some points that might clear your concept about national income.
- · National income is a money measure of the total production of goods and services of an economy.
- · National income includes the net value of only final goods.
- · National income is the net value of total production of goods and services of current year whether it is sold and consumed in the same year or not.
- · National income is measured for one year.
- · National income does not includes income from illegal source of earning.
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There are various interrelated and overlapping concepts of national income which provides a useful guidance for economic policies, so as to meet the objectives. These concepts are as follow:
- · Gross National Product (GNP)
- · Gross Domestic Product (GDP)
- · Net National Product (NNP)
- · National Income at Factor Cost (NI)
- · Personal Income (PI)
- · Disposable Personal Income (DPI)
Gross National product
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"Aggregate final output of citizens and businesses of an economy in one year period".
Gross national product is the money value of all final goods and services produced during a year in a country, including net income from abroad.
According to Prof. Christopher Pass and Prof. Bryan Lowes
"Gross National Product is the total money value of all final goods and services produced in an economy over a one-year period plus net property income from abroad".
GNP= GDP + Net Factor Income from Abroad
Gross Domestic Product
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"Aggregate final output of resident and businesses in an economy in a one-year period"
Gross National Product is the money value of all final goods and services produced during a year in a country, excluding net income from abroad.
According to Prof. Christopher Pass
"Gross National Product is the total money value of all final goods and services produced in an economy over a one-year period".
GDP= GNP - Net Income from Abroad
Net National Product
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"The money value of the total volume of production after allowance has been made for depreciation"
In the production of gross national product of a year, we use up some fixed capital, machinery, equipment. Some fixed equipment wears out. It's other component are damaged due to use in the production process. This consumption of fixed capital or fall in the value of fixed capital due to wear and tear is called depreciation. When charges for depreciation are deducted from the gross national product, we get net national product.
According to Prof. Nancy Wall
"Gross National Product is the total money value of all output for the economy as a whole, less amount of capital which has worn out during the year".
NNP= GNP - Depreciation
Net Income at factor cost
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Net National Product gives a measure of national income by adding money value of all goods and services produced in a country in a given period of time at market prices. But total value of national output is not distributed among the people as factor income in form of rent, wages, interest and profit. So, we find national income at factor cost.
There are two causes of difference between NNP and income received by the people.
Firstly, a part of NNP is taken away by the government as indirect taxes on commodities such as sales tax and excise duty. These taxes out of a firm's sales revenue reduce the amount to be distributed as wages and rent.
Secondly, sometimes the government helps industries by paying subsidies. Subsidies raise the amount paid to the factors above market price.
In order to arrive at national income, while factors actually receive, the amount of indirect taxes is deducted from and subsidies are added to net national product.
Or in simple words:
"National Income at factor cost is the sum of all incomes earned by resource supplier for their contribution of land, labor, capital and entrepreneurial ability which go into the year's net production".
Net Income = NNP - Indirect Taxes + Subsidies
Personal Income
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"The income received by the individual of a country in a year from all sources".
Personal Income is the sum of all incomes actually received by all individuals or households during a given year. Personal Income is never equal to the national income because the former includes the transfer payments whereas they are not included in national income. Personal income is derived from national income by deducting undistributed corporate profits, profit taxes and employee contribution to social security schemes.
According to Prof. W.C. Peterson
"Personal income is the current income received by the person all sources including transfer income from government and businesses".
Disposable Personal Income
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"Income after tax, that which a person has available to spend".
Disposable Personal Income is the actual income, which can be spent on consumption by individual and families. An individual cannot spend all his income on consumption because, it is the income that accrues before the income tax has been paid. Therefore, disposable personal income is that part of income which is left after the deduction of direct taxes.
DPI = PI - Direct Taxes
According to Prof. Peterson
"Disposable income is the income remaining with individuals after deduction of all taxes levied against their income and property by the government".
