Note on National Income Accounting

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Meaning of National Income

National income is the sum of income earned by all the individuals of a country within the specific time period, generally within a year. The individual of a nation or various incomes from different types of all the final goods and services produced in a country within a year is called national income.

Symbolically: NI = Y1 + Y2 + Y3 + .... + Yn

YI = Individual income of first person

Y2 = Individual income of second person and so on.

Different Concept of National Income

The various concepts associated with national income are as follows:

1. Gross Domestic Product (GDP)

Gross means total, domestic means home and product means output. So, GDP is the total market value of all currently produced final goods and services within the geographical boundary of a country in a specific time period generally in a year. GDP includes the points below:

  • GDP is the market value of goods and services.
  • GDP excludes the home product, households, etc.
  • GDP includes only currently produced goods and services.
  • GDP does not include previous year production.
  • GDP includes only final goods and devices.
  • GDP excludes intermediate goods (Raw materials)
  • GDP includes the good produced within the country, whether they are produced by domestic people or foreigners, it is included.
  • GDP excludes the transfer payments like pensions.
  • They don’t contribute to current production.

Suppose an economy is producing Q1, Q2, Q3 .... types of final goods and services whose respective prices are P1, P2, P3 .... then GDP is given by:

GDP = P1Q1 + P2Q2 + P3Q3 + .... + PnQn

According to expenditure approach, the GDP is given by:

GDP = C + I + G + (X - M)

where,

C = Consumption expenditure

I = Investment expenditure

G = Government expenditure

X = Export

I = Import

While calculating GDP, the total quantity of final goods and services produced during that year within a domestic territory of a country are multiplied by market price.

2. Gross National Product (GNP)

GNP (quotesgram.com)
(Source: quotesgram.com)

GNP is the total market value of all currently produced final goods and services within the boundary of the country in a year plus net factor income abroad (NFIA). NFIA is the difference between what domestic people earn from abroad and what foreign people earn from the domestic economy.

Symbolically,

GNP = GDP + (X - M)

Where,

GDP = Gross Domestic Product

X = Export

I = Import

While calculating GNP, the final goods and services that are produced during a particular year are included because GNP is the measure of the economy's production during a given time period.

3. Net National Product (NNP)

The physical capitals like machinery items get wear and tear in the process of production so, there is fall in the price of such goods which is called depreciation. When we deduct the value of depreciation from GNP, we get NNP. NNO is the market value of all final goods after deducting the depreciation on it.

NNP =GNP - Depreciation

4. Personal Income (PI)

The total amount of money income received by the individuals and the households of a country from all possible sources, before paying tax is called Personal Income (PI). An individual or a household earns income from wages and salary, rent, interest, shares, etc. Thus PI is expressed as:

PI = National Income - corporate income tax - undistributed corporate profit - social security contribution + transfer payments

5. Disposable Income (DI)

The income which is left after paying the direct tax to the government is called Disposal Income (DI). DI is expressed as:

DI = Personal Income - Direct Taxes

Source: study.com
Source: study.com

Out of disposal income, the individual may save some part from the income for future security and spend some certain amount on consumption. Therefore, DI can be expressed as:

DI = C + S

Where,

DI = Disposal Income

C = Consumption expenditure

S = Saving

6. Per- Capita Income (PCI)

Source: www.tradingeconomics.com
Source: www.tradingeconomics.com

The average income of the individuals of a country in any year is called PCT. It is calculated the NT by the total population of that year.

Symbolically,

PCI of 2013 =\(\frac{NI \;of \;2013 }{total\; population \;of \;2013}\)

Reference:

Adhikari, Ramesh Prasad, Economics-XI, Asmita Pustak Prakashan, Kathmandu

Kanel, Navaraj et.al., Principles of Economics-XI, Buddha Prakashan, Kathmandu

Kharel, Khom Raj et.al., Economics In English Medium-XI, Sukunda Pustak Bhawan, Kathmandu

  1. National income is the sum of income earned by all the individual of the individuals of a country within specific time period.
  2. The individual of a nation or various incomes from different types of all the final goods and services produced in a country within a year is called national income.
  3. Gross domestic product, gross national product, net national product, personal income, disposable income and per-capita income are the concepts of national income.
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