There are various concepts of National Income.

The main concepts of NI are: GDP, GNP, NNP, NI, PI, DI, and PCI.
These different concepts explain about the phenomenon of economic activities of the various sectors of the various
sectors of the economy.

Gross Domestic Product (GDP)

The most important concept of national income is Gross Domestic Product. Gross domestic product is the money
value of all final goods and services produced within the domestic territory of a country during a year.

Algebraic expression under product method is,

GDP=(P*Q)

where,
GDP=Gross Domestic Product
P=Price of goods and service
Q=Quantity of goods and service
denotes the summation of all values.

According to expenditure approach, GDP is the sum of consumption, investment, government expenditure, net
foreign exports of a country during a year.

Algebraic expression under expenditure approach is,

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

Where,
C=Consumption
I=Investment
G=Government expenditure
(X-M)=Export minus import

GDP includes the following types of final goods and services. They are:

• Consumer goods and services.

• Gross private domestic investment in capital goods.

• Government expenditure.

• Exports and imports.

Gross National Product (GNP)

Gross National Product is the total market value of all final goods and services produced annually in a country plus
net factor income from abroad. Thus, GNP is the total measure of the flow of goods and services at market value
resulting from current production during a year in a country including net factor income from abroad. The GNP can
be expressed as the following equation:

GNP=GDP+NFIA (Net Factor Income from Abroad) 

or, GNP=C+I+G+(X-M)+NFIA

Hence, GNP includes the following:

 • Consumer goods and services.

• Gross private domestic investment in capital goods.

• Government expenditure.

• Net exports (exports-imports).

• Net factor income from abroad.

Net National Product (NNP)

Net National Product is the market value of all final goods and services after allowing for depreciation. It is also called
National Income at market price. When charges for depreciation are deducted from the gross national product, we get
it. Thus,

NNP=GNP-Depreciation
or, NNP=C+I+G+(X-M)+NFIA-Depreciation

National Income (NI)

National Income is also known as National Income at factor cost. National income at factor cost means the sum of all
incomes earned by resources suppliers for their contribution of land, labor, capital and organizational ability which go
into the years net production. Hence, the sum of the income received by factors of production in the form of rent,
wages, interest and profit is called National Income. Symbolically,

NI=NNP+Subsidies-Interest Taxes
or,GNP-Depreciation+Subsidies-Indirect Taxes
or,NI=C+G+I+(X-M)+NFIA-Depreciation-Indirect Taxes+Subsidies

Personal Income (PI)

Personal Income i s the total money income received by individuals and households of a country from all possible
sources before direct taxes. Therefore, personal income can be expressed as follows:

PI=NI-Corporate Income Taxes-Undistributed Corporate Profits-Social Security

Contribution+Transfer Payments

Disposable Income (DI)

The income left after the payment of direct taxes from personal income is called Disposable Income. Disposable
income means actual income which can be spent on consumption by individuals and families. Thus, it can be
expressed as: 

DI=PI-Direct Taxes
The labour and capital of a country acting on its natural resources produce annually a certain net
aggregate of commodities material an immaterial including services of all kinds- Marshall

National income consists solely of services as received by ultimate consumers, whether from their
material or from their human environments- Fisher

A national income estimate measures the volume of commodities and services turned out during a given
period counted without duplication- National Income Committee of India (1951)

Gross national product at market prices is the market value of the produce before deduction of
provisions for the consumption of fixed capital distributable to the factors of production supplied by the
normal residents of the given country- United Nations Department of Economic Affairs

National income is a collection of goods and services reduced to a common basis by being measured in
terms of money- Hicks

Therefore, all the above definitions make it clear that national income is the monetary measure of-

·         The net value of all products and services

·          In an economy during a year

·         Counted without duplication

·         After allowing for depression

·         Both in the public and private sector of products and services

·         In consumption and capital goods sector

·         The net gains from international transactions.

What is gross national product (G.N.P.)?

Answer:
It is the basic measure of a nation’s output stated in terms of money representing the total value of a
nation’s annual output. It is evaluated in terms of market prices. It includes all the economic productions
in the economy from apples and automobiles to zinc and zippers.

G.N.P. is defined as the money value of the national production for any given period. Here we take into
account:

·         The money value of the final goods and services produced in the economy to avoid double counting.
Intermediate products are excluded from it. 

·          The money value of only currently produced goods and services as G.N.P. is a measure of the
economy’s productivity during the year.

·         The word gross has significance. We do not deduct the depreciation or replacement of the fixed
assets. In the process of production there is wear and tear of fixed assets. This depreciation is loss to the
economy and it will not be deducted from GNP produced in the economy.

  What is net national product (N.N.P.)?

Answer:
It refers to the net production of goods and services in a country during the year. It is G.N.P. less
depreciation during the year.

N.N.P. = G.N.P. - depreciation for the given year

It is also called national income at market prices. It is a useful concept in study of growth economics as it
takes into consideration the net increase in the total production of the country.

What is national income at factor cost (N.I.FC)?

Answer:
It is the total of all incomes earned by the owner of factors of production for their contribution of factors
of production. 

Therefore, for calculating it, such payments which are not made for any productive service is not
included. Example- an individual may get gifts, transfer payments from business, etc. which form a part
of his income but, since he has not rendered any service to get from them, they do not enter the
calculation of national income at factor cost.

N.I.FC= N.N.P. - indirect taxes+ subsidies

It is therefore the aggregation of factor earnings. It does not include capital consumption allowance
government business and individual transfer payments and indirect taxes. All these do not reach the
factors of production. Similarly, if the government pays any subsidy in support of any industry whose cost
of production is high, these subsidies have to be added.

What is personal income (P.I.)?

Answer:
This is the actual income received by the individuals and households in the country from all sources. It
denotes aggregate money payments received by the people by way of wage, interest, profits, and rents.
It is the spendable income at current prices available to individuals. Corporate income taxes and
payment towards social security measured will not be available for individuals, so these have to be
deducted from what is earned. Payments such as old age pensions, widow pensions, etc. that accrue to
people have to be added.

P.I. = N.I. – corporate taxes – undistributed corporate profits – social security contributions + transfer
payments

Transfer payments may be by government or business transfers, interest paid by government, dividends,
etc.

What is disposable personal income (D.P.I.)?

Answer:
The whole of personal income is not available for consumption as personal direct taxes have to be paid.
What is left after payment of personal direct taxes is call disposable personal income.

D.P.I = P.I. – personal taxes, property taxes and insurance payments

This is the amount available for individuals and households for consumption. It is not that the entire
D.P.I. is spent on consumption. A part of it may be saved, therefore

D.P.I. = consumption + savings

What remains after saving is called the personal outlay, which represents the community’s demand for
goods and services.

 
Discuss the various methods of calculating national income.
Answer:
There are three methods by which national income can be calculated-

        I.            Product Method

This is also called the output method, the inventory method or the census method. It consists of finding
out the market value of all the goods and services produced during a year.
According to this method the economy is classified into different sectors, namely

·         Direct sector: in this sector the value of services of such professions like doctors, dramatics, soldiers,
politicians, etc., are taken by equating to their services.

·         Agriculture industry

·         International transaction sector: in this sector, we take into account the value of goods exported
and imported payment from abroad, payments to other countries.

In each sector we make an inventory of goods produced and find out the end product making an
addition to the value of goods. The value added method can be followed in order to avoid double
counting. The value added of a firm is its output less whatever it purchases from other firms such as raw
materials, and other inputs.

This method has a merit because it helps us to have a comparative idea of the importance of various
activities in economy like agriculture, manufacturing, trade, etc. However in advanced countries this
method may be successful as it is very easy to get data from government records. But in under
developed countries this method may give rise to various problems like imputation of money values to
non- monetized sector.

      II.            Income Method

This method refers to the gross national income obtained by adding together wages and salaries,
interests, profits and rents of persons and institution and including government incomes are earned
either from property or through work. To arrive at the totality of income of nation, the following
procedure will be adopted:

a)      Net rents include the rental value of owner occupied houses.

b)      Wages, salaries and all such earnings of person employed, pensions are excluded.

c)      Earnings by way of interest.

d)      Income of joint stock companies.

e)      Income from overseas investment.

This method gives national income at factor cost.

    III.            Expenditure Method

This method is also called the flow of product approach (by American economist Samuelson) or
the outlay method.

             Here we take into account the expenditure on finished products-

·         Expenditure by consumers on goods and services.

·         Expenditure by producers on investment of goods.

·         Expenditure by government on consumption as well as capital goods.

To this we add money received from abroad through trade and other payments. This figure thus arrived
at will give us G.N.P.

The merit of this method is that it believes in the identity between national expenditure, income and
total product.

Whichever method we use the result should be more or less the same. In other words, they can be used
to cross-check reliability of each other.