What is National Income

 National Income is the

money value of all goods
and services produced in a
country during a year. It
includes income from all
the productive sectors
 The term ‘money value’
means the value estimated
at the current price of the
goods and services
BASIC CONCEPTS OF
NATIONAL INCOME
 Gross Domestic Product (GDP)
 Gross National Product (GNP)
 Net National Product (NNP)
 Personal Income
 Disposable Income
 Per Capita Income
GDP and GNP
 GDP = Gross Domestic Product, is
the value of all final goods and
services produced by all sectors of
the economy the citizens or foreign
sectors within a country.
 GNP = Gross National Product, is the
value of all final goods and services
produced by all citizens of a country
(within a country or abroad).
NET NATIONAL PRODUCT
 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
 NNP=GNP-Depreciation
or
 NNP=C+I+G+(X-M)+NFIA-Depreciation
 Depreciation describes the devaluation
of fixed capital through wear and tear
associated with its use in productive
activities.
PERSONAL INCOM E
 Personal Income is the total money
income received by individuals and
households of a country from all
possible sources before direct taxes.
Disposable Income
 Disposable income means the actual
income which can be spent on
consumption by individuals and families.
The whole of the personal income
cannot be spent on consumption,
because it is the income that accrues
before direct taxes have actually been
paid.
 Disposable Income=Personal Income –
Direct Taxes- miscellaneous expenses
Per Capita Income
 The average income of the people of a
country in a particular year is called Per
Capita Income for that year. For
instance, in order to find out the per
capita income, the national income of a
country is divided by the population of
the country in that year.
The Top five capita are:

Country Per capita income in ₹ value

$
Luxembourg 1,04,359 70,97,972.13
Switzerland 78,179 53,17,340.75
Norway 69,711 47,41,390.16
Qatar 66,265 45,07,010.64
Macao 62,521 42,52,362.67
The five Poorest Countries per
Capita (2015)

Country Per capita income in ₹ value

$
Malawi 250.381 17029.65
Burundi 330.124 22453.37
Central African 25036.03
368.096
Republic
Democratic Republic 28016.31
411.914
of the Congo
Madagascar 475.350 32330.91
Methods Measurement of
National Income
Production method
 The sum total of products produced in
all sectors is the total output of the
nation. The next step is to find out the
value of these products in terms of
money.
 The money sent by Indian citizens
working abroad is also added to this.
Now we get the gross national income.
 GNI =Money value of total goods and
services + Income from abroad
Example
firm Type of production Cost price Selling price profit
P S T
A Medicine 1000 1500 500
B Furniture 1200 1500 300
C Cloths 900 1300 400
D Electronic equipment 2000 3000 1000
E Food items 1800 2200 400
Total 6900 9500 2600

GNI= Total selling price-total cost price+income from abrod

9500-6900 = 2600
Income Method
 Under this method, national income is measured as
a flow of factor incomes. There are generally four
factors of production labour, capital, land and
entrepreneurship. Labour gets wages and salaries,
capital gets interest, land gets rent and
entrepreneurship gets profit as their remuneration.
 Besides, there are some self-employed persons who
employ their own labour and capital such as doctors,
advocates, CAs, etc. Their income is called mixed
income. The sum-total of all these factor incomes is
called NDP at factor costs.

 GNI = Rent + Wage + Interest + Profit +Income

from abroad
Example
 The production of bread has three stages first, the farmer
produce the wheat and sell it to the floor mill. Second, the
mrifer turns it into flour and sell it to the baker. Third, the
baker makes bread and sell it to final customer and take
final price of bread and take the value added at each
successive stage of production. first stage shows income of
farmer. Second stage the value added by the millers equals
the sale of floor less cost of wheat and third stage the value
added by baker equals the sale price of bread less the value
of flour.
 The value added at each stage can now be allocate to
various factors of production. The income of farmer, mrifer,
baker represent their profits, wages of their employees, rent
of land and buildings, interest on capital employed .
Find out NI
Total wages and salary receive 255650
Total interest and dividend receive 10000
Total rent and inputed rent 80880
Gross trading profit from company 65500
Total income of self employed 33700
Income paid account 54345

Income receive from abroad 76680

Capital consumption 445
Expenditure Method
 Household or consumer expenditure on
consumption goods.
 Firm or producer expenditure of capital
goods. Also known as gross investment.
 Government expenditure on goods and
services, excluding transfer payment.
Expenditure on exports and imports.

 GNI= Individual Expenditure

+Government Expenditure.
Find out NI

Total consumer expenditure 50000

Gross investment 20000
Govt expenditure 18500
exports 9000
Imports 8565
Change in stock 1000
Net income from abroad 250
Exp. Taxes 870
Subsidies 695
Capital consumption 2750
Importance of National Income
 Useful in measuring the standard of living of a
nation through estimating per capita income of
the nation.
 Time series comparison (year to year).
Measuring growth of the economy.
 Comparison between two or more countries
can be made.
 Useful in revealing the expenditure pattern of a
country.
 Useful in measuring the level and pattern of
investment.
 Balance of payments pattern.
 National income as an indicator of success or
failure of national planning.