MACROECONOMICS

MACROECONOMICS
DIFFERENT MEASURES OF NATIONAL INCOME

ASSIGNMENT 1
SUBMITTED TO:
MA’AM KHUDIJA
SUBMITTED BY:
MEHREEN MEHBOOB
ROLL NO.:
F19BB023
SECTION:
F 19 MORNING-B
 MACROECONOMICS

NATIONAL INCOME:
Total market value of final goods and services produced in a country during one
year is called national income. All kinds of goods e.g., agricultural, industrial,
minerals and trade products are included in national income and all kinds of
services e.g., services of lawyers, doctors, professors and engineers etc., are also
included in national income.
DIFFERENT MEASURES OF NATIONAL INCOME
Various concepts of national income are as follows:
1. Gross Domestic Product (G.D.P):
Total market value of all the final goods and services produced within the
geographical boundaries of a country during one year is called gross domestic
product.
It is calculated as:
Gross Domestic Product = Gross National Product – Foreign
Income1
For example:
All the clothing, medicines, cosmetics etc. produced within Pakistan
2. Gross National Product (G.N.P) or Gross National Income
(G.N.I):
GNP of a country is the total market value of all final goods and services produced
during a period of one year. It is the output generated by a country's businesses
located domestically or abroad. Money sent by Pakistani nationals living abroad is
also included in G.N.I.
It is calculated as:
Gross National Income = Gross National Product + Foreign Income
For example:

1
Money earned by a national for performing services in a foreign country

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All the agricultural, industrial products etc. and also the money earned by foreign
Pakistanis is included in Pakistan’s G.N.I.
3. Net National Product (N.N.P):
Net national product (NNP) is gross national product (GNP), total value of finished
goods and services produced by a country's citizens overseas and domestically,
minus depreciation.2
It is calculated as:
Net National Product = Gross National Product – Depreciation
For example:
An example of N.N.P is a country's profit from exporting rice to other countries.
4. National Income at factor cost (N.I):
If indirect taxes are subtracted from N.N.P and subsidies are added in N.N.P, we
get N.I. It is the income which is the aggregate of net rewards of four factors of
production i.e., rents, wages, interests and profits.
It is calculated as:
National Income = Net National Product – Indirect taxes 3+
subsidies4
5. Personal Income (P.I):
It is the income which a person earns individually in one year. Transfer payments 5
and direct taxes 6 are included in personal income. Undistributed corporate profit7,
corporate profit tax 8 and contribution for social welfare fund are not included in
P.I.

2
The expenditure made on the repair of something
3
Tax charged on producers of goods and services which is paid by the consumer indirectly.
4
A benefit given to an individual, business, or institution, usually by the government.
5
Amounts of money which a person gets without labor e.g., donations.
6
Taxes imposed on income and profits.
7
Taxes on production and imports. includes sales taxes, excise taxes, business property taxes
etc.
8
Taxes on profits

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It is calculated as:
Personal Income = National Income + Transfer payments + Direct
taxes – Corporate profit tax – Undistributed corporate profit –
Contributions for welfare fund
For example:
A doctor earns $1000 in a year, is his personal income.
6. Disposable Personal Income (D.P.I):
The income in the possession of a man after the payment of direct taxes, is called
disposable personal income. It is as the disposal of a person and he can spend it
according to his own freewill.
It is calculated as:
Disposable personal Income = Personal Income – Direct taxes
For example:
The annual income of a professor is Rs. 96000 and he has to pay Rs. 5000 as
income tax. The remaining Rs. 91000 are his D.P.I.

BETTER MEASURE OF NATIONAL INCOME

Gross Domestic Product (G.D.P) is generally referred to as a better measure of
income because G.D.P is an accurate indicator of the size of an economy and
the GDP growth rate is probably the single best indicator of economic growth. It
provides a more accurate picture of a nation's total economic activity regardless of
country-of-origin, and thus offers a better indicator of an economy's overall health.
It also represents the value of all goods and services produced over a specific time
period within a country's borders.