10 most essential concepts of national income explained

National income is the sum total of wages, rent, interest, and profit earned by the factors of production of a country in a year. Thus it is the aggregate values of goods and services rendered during a given period counted without duplication.

Below are given some of the important concepts of national income.

1. Gross Domestic Product at Market Price.

2. Gross National Product at Market Price.

3. Net Domestic Product at Market Price.

4. Net National Product at Market Price.

5. Net Domestic Product at Factor Cost.

6. Net National Product at Factor Cost.

7. Gross Domestic Product at Factor Cost.

8. Gross National Product at Factor Cost.

9. Private Income.

10. Personal Income

11. Disposable Income.

(1) Gross Domestic Product at Market Price (GDP at MP):-

Gross domestic product at market price is the aggregate money value of the final goods and services produced within the country’s own territory. So as to calculate GDP at MP all goods and services produced in the domestic territory are multiplied by their respective prices. Symbolically GDP at MP = PXQ. Where P is market price and Q is final goods and services. GDP includes only those goods which come to the market for sale. The values of final goods are only expressed in money terms. Value of depreciation and transfer payments are not included in GDP at MP. The value of second hand goods is excluded from gross domestic product.

[Gross Domestic Product at Market Price = value of gross domestic output – value of intermediate consumption]

(2) Gross National Product of Market Price (GNP at MP):-

Gross national product at market price is broade and comprehensive concept. GNP at MP measures the money value of all the final products produced annually in a counter plus net factor income from abroad. In short GNP is GDP plus net factor incomes earned from abroad. Net factor incomes is derived by reducing the factor incomes earned by foreigners from the country, in question from the factor incomes earned by the residents of that country from abroad.

[Gross National Product at Market Price = Gross domestic product at market price + Net factor income from abroad.]

(3) Net Domestic Product at Market Price (NDP at MP):-

Net domestic product- at market price is the difference between Net National Product at market price and net factor income from abroad. Net domestic product at market price is the difference been GNP at market price minus depreciation and net factor incomes from abroad.

[Net Domestic Product at Market Price = GNP at MP – Depreciation – Net factors income form abroad]

(4) Net National Product at Market Price (NNP at MP):-

Net National product measures the net money value of final goods and services at current prices produced in a year in a country. It is the gross national product at market price less depreciation. In production of output capital assets are constantly used up. This fixed capital consumption is called depreciation. Depreciation constitutes loss of value of fixed capital. Thus net national product is the net money value of final goods and services produced in the course of a year. Net money value can be arrived at by excluding depreciation allowance from total output.

[NNP at MP = GNP at MP – Depreciation]

(5) Net Domestic Product at Factor Cost (NDP at FC):-

Net Domestic product of factor cost or domestic income is the income earned by all the factors of production within the domestic territory of a country during a year in the form of wages, interest, profit and rent etc. Thus NDP at FC is a territorial concept. In other words NDP at factor cost is equal to NNP at FC less net factor income from abroad.

[NDP at FC = NNP at FC – Net factor income from abroad]

(6) Net National Product at Factor Cost (NNP at FC)

Net national product at factor cost is the aggregate payments made to the factors of production. NNP at FC is the total incomes earned by all the factors of production in the form of wages, profits, rent, interest etc. plus net factor income from abroad. NNP at FC is the NDP at FC plus net factor income from abroad. NNP at FC can also be derived by excluding depreciation from GNP at FC.

[NNP at FC = NDP at FC + Net Factor Income from abroad]

(7) Gross Domestic Product at Factor Cost (GDP at FC):

Gross Domestic Product at factor cost refers to the value of all the final goods and services produced within the domestic territory of a country. If depreciation or consumption of fixed capital is added to the net domestic product at factor cost, it is called Gross domestic Product at Factor cost.

[GDP at FC = NDP at FC – Depreciation]

(8) Gross National Product at Factor Cost (GNP at FC):-

Gross national product at factor cost is obtained by deducting the indirect tax and adding subsidies to GNP at market price or Gross national Product at factor cost is obtained by adding net factor incomes from abroad to the GDP at factor cost.

[GNP at FC = GNP at MP – Indirect tax + Subsidies] or, [GNP at FC = GDP at FC + Net Factor Income from abroad]

(9) Private Income:-

Private income means the income earned by private individuals from any source whether productive or unproductive. It can be arrived at from NNP at factor cost by making certain additions and deduction. The additions include (a) transfer earnings from Govt, (b) interest on national debt (c) current transfers from rest of the world. The deductions include (a) Income from property and entrepreneurship (b) savings of the non- departmental undertakings (e) social security contributions. In order to arrive at private income the above additions and subtraction are to be made to and from NNP at factor Cost.

[Private Income = NNP at FC + transfer payments + Interest on public debt – social securities – profits and surpluses of public undertakings]

(10) Personal Income:-

Personal Income is the total income received by the individuals of country from all sources before direct taxes. Personal income is not the same as National Income, because personal income includes the transfer payments where as they are not included in national income. Personal income includes the wages, salaries, interest and rent received by the individuals. Personal income is derived by excluding undistributed corporate profit taxes etc. from National Income.

[Personal Income = Private Income – Saving of Private enterprise – Corporate tax]

(11) Disposable Income:-

Disposable income means the actual income which can be spent on consumption by individuals and families. It refers to the purchasing power of the house hold. The whole of disposable income is not spent on consumptions; a part of it is paid in the form of direct tax. Thus disposable income is that part of income, which is left after the exclusion of direct tax.

[Disposable Income = Personal Income – Direct tax]