National Income is the sum of all the goods and services produced in a country, in a particular period of time. Normally this period consists of one year duration, as a year is neither too short nor long a period. Concept of National Income:-
1. Gross National Product (GNP):-
GNP at market price is sum total of all the goods and services produced in a country during a year and net income from abroad.
Net Factor Income from Abroad
GNP at Market Price
Gross Domestic Product at Market Price
To calculate the GNP these points must be considered:
* Consumer goods and services.
* Gross private domestic income.
* Goods and services produced by Government.
* Net income from abroad.
2. Gross Domestic Product(GDP):-
Is the market value of all recognized goods and services produced within a company in a particular given period of time. GDP at Market Price is estimated by deducting the value of intermediate consumption from the value of output produced by all the producer within the domestic territory of a country.GDP of the country is measured by the World Bank.
Components of GDP:-
In GDP we find different components of income namely
(1) Wages and salaries
(5) Undistributed Profit
(6) Mixed income
(7) Direct taxes.
3. Net National Product (NNP):-
Is the total market value of all goods and services produced by a country in a given period of time. Net National Product is the difference of Gross National Product and depreciation.
4. Personal Income:-
The income actually received by persons from all sources in the form of current transfer payments and factor income. Total income received by the citizens of a country from all sources before direct taxes in a year.
Personal Income = Private Income + Undistributed Corporate Profits – Direct Taxes
5. Disposable Income:-
The income remaining with individuals after deduction of all taxes levied against their income and their property by the government. Disposable Income refers to the income actually received by the households from all sources. The individual can dispose this income according to his wish, as it is derived after deducting direct taxes.
DI = Personal Income – Direct Taxes – Miscellaneous Receipt of the Government
Approaches to Calculate national Income
1. Income Approach: - sum total of incomes of individuals living in a country during 1 year. Another way of measuring GDP is to measure total income. Approach measures GDP by adding incomes that firms pay households for factors of production they hire- wages for labor, interest for capital, rent for land and profits for entrepreneurship. These are divided into five categories:
1. Wages, salaries, and supplementary labor income
2. Corporate profits
3. Interest and miscellaneous investment income
4. Farmers’ income
5. Income from non-farm unincorporated businesses
These five income components sum to net domestic income at factor cost. The formula to calculate the GDP is
SA: statistical adjustments (corporate income taxes, dividends, undistributed corporate profits) W: wages.
2. Production Approach: - Market value of all final goods and services calculated during 1 year. The production approach is also called as Net Product or Value added method. This method consists of three stages: * Estimating the Gross Value of domestic Output in various economic activities; * Determining the intermediate consumption, i.e., the cost of material, supplies and services used to produce final goods or services; and finally * Deducting intermediate...