National Income

Deval B Patel
• National Income: Income – Value----Money value
• National Income: Total money value of all goods &
services produced in a financial year
• Modern Definitions:
From the modern point of view, Simon Kuznets has
defined national income as “the net output of
commodities and services flowing during the year from
the country’s productive system in the hands of the
ultimate consumers.”
• Financial year (in India): 1st April to 31 of March
• Where ?
• Who?
 National Income and Related Aggregates

• Domestic territory
It means political boundaries of country (in or outside the
country) ex. Foreign embassy of India
• Normal resident
It refers to an individual or an institution who ordinarily
reside in a country for a period more than a year and whose
center of economic interest lies in that country
• Citizen
On the place of birth
By some legal provision
• Factor Income • Transfer Income
Income earned by Earned without any
rendering factor services rendering services

Included in national Not included in National

income income
Ex. Salary, wages etc. Ex. Lottery, Scholarship
etc.
• Final Goods • Intermediate Goods
• Used for Final • Used as a war material
Consumption For Further process
• Not for Further process Used in the same year else
count final goods

National Income Includes only final

goods
It depend on nature of use Ex. Sugar
final good for customers but
intermediate for cake shop
• Gross Value • Net Value
Purchasing Value Actual Value
Ex. Redmi Note 3

Purchasing Value
10000
8000 (After 6 months)
Depreciation: Continuous reduction in
the value of fixed assets
10000-8000=2000 (Depreciation)
Gross-Net=Dep
Gross-Dep=Net
 Formula-1
• Gross

• +Dep -Dep

• Net
• Depreciation is also known as current
replacement cost, replacement cost of fixed
factor, consumption of fixed factor
• Factor Cost Market Price
(Cost of Production) (Sales Price)
8 + 22 = 10
2 is tax :
NIT Net indirect Tax(Indirect tax-subsidies)
FC

-NIT +NIT

MP
• Domestic Income National Income
Inside the country Inside + Outside
100 + 20 100 + 20

(120)
NFIA : Net Factor Income from abroad
= Factor Income received from abroad –
factor income paid to abroad

Domestic

-NFIA +NFIA (Received -Paid)

National
 Formula
Gross FC Domestic

-Dep +Dep -NIT +NIT -NFIA +NFIA

Net MP National
 How to remember
• Domestic National
•
• ______ ______ _____
• _____
• Gross Net Product
• Factor Cost Market
Price
• GDP – Gross Domestic Product
• NDP- Net Domestic Product
• GNP- Gross National Product
• NNP –Net National Product
• GDP: G-Gross = Total
D- Domestic = Within Country
P- Product = Goods & Services
GDP= C+G+I+NX
C- Consumer Spending
G- Government Spending
I – Investments
NX- Net Exports(Total Exports- Total Imports)
• NDP= Net Domestic Product
Depreciation
NDP= GDP – Depreciation on capital goods

GNP= Gross National Product

GNP=GDP+ Income from abroad- Income to abroad

NNP= Net National Product

NNP= GNP- Depreciation on Capital goods

• NDPFC +NFIA = NNPFC

• Domestic Income + NFIA= National Income

• NNPFC is National income

• CSO(Central statistical Organization)
 Importance of National Income Analysis

1. For the Economy:

2. National Policies:
3. Economic Planning:
4. Economic Models:
5. Research:
6. Per Capita Income:
7. Distribution of Income:
 Methods of Measuring National Income:

(1) Value Added Method / Product Method:

(2) Income Method:
(3) Expenditure Method:
 1. The financial year in India is
• a. April 1 to March 31
b. January 1 to December 31
c. March 1 to April 30
d. March 16 to March 15
2. Consider the following statements and identify the right ones.

• i. National income is the monetary value of all final

goods and services produced.
ii. Depreciation is deducted from gross value to get
the net value

a. I only
b. ii only
c. both
d. none
3. Consider the following statements and identify the right ones.

• i. While calculating GDP, income generated by

foreigners in a country is taken into consideration
ii. While calculating GDP, income generated by nationals
of a country outside the country is taken into account

a. I only
b. ii only
c. both
d. none
4. The net value of GDP after deducting
depreciation from GDP is
• a. Net national product
b. Net domestic product
c. Gross national product
d. Disposable income
5. Consider the following statements and identify the right ones.

• i. While calculating GNP, income generated by

foreigners in a country is taken into consideration
ii. While calculating GNP, income generated by nationals
of a country outside the country is taken into account

a. I only
b. ii only
c. both
d. none
6. When depreciation is deducted from GNP,
the net value is
• a. Net national product
b. Net domestic product
c. Gross national product
d. Disposable income
7. The value of NNP at consumer point is

• a. NNP at factor cost

b. NNP at market price
c. GNP at market price
d. GNP at factor cost
8. The value of NNP at production point is called

• a. NNP at factor cost

b. NNP at market price
c. GNP at market price
d. GNP at factor cost
9. The average income of the country is

• a. Per capita income

b. Disposable income
c. Inflation rate
d. Real national income