National Income
National income is the sum total of the value of all the goods and services manufactured by
the residents of the country, in a year. Within or without the confines of its own home. It is
the net amount of income earned by citizens in a given year as a result of their labour.
National income, to be more specific, is the total dollar worth of all final goods and services
generated in a country over a given fiscal year. The computation of national income is critical
since it reflects the overall health of our economy for that year.
Data on national income is used to calculate a country's overall economic performance. The
primary goal of national income is to shed light on aggregate output and income and provide
a foundation for the government to design policies and programmes that promote the people's
national welfare. Central Statistical organisation calculates the national income in India.
Why is National Income Important
1. Setting Economic Policy- National Income indicates the status of the economy and
can give a clear picture of the country’s economic growth. National Income statistics
can help economist in formulating economic policies for economic development.
2. Inflation and Deflationary Gaps- For timely anti-inflationary and deflationary
policies, we need aggregate data of national income. If expenditure increases from the
total output, it shows inflammatory gaps and vice versa.
3. Budget Preparation- The country's budget is heavily reliant on net national income
and related ideas. To avoid cynical policies, the government creates the annual budget
with the support of national income information.
4. Standard of Living- National income data assists the government in comparing the
standard of living amongst countries and people living in the same country at different
time.
5. Defence and Development: Estimates of national income allow us to divide the
country's national product into two categories: defence and development. We can
simply determine how much money can be set aside for the defence budget based on
these numbers.
National Income Definition-
National income is the monetary value of a country's final commodities and services
generated over a specific time period. Between G.N.P. and N.N.P., Keynes' idea of national
income falls somewhere in the middle. He deducts only the "User Cost" from G.N.P., i.e. the
drop in the value of capital equipment that is actually used rather than complete depreciation.
According to the modern definition, national income is the total factor income generated by
the nation's economy's present production of goods and services.
,The nation’s economy refers to the factors of production supplied by the normal residents of
the national territory. Thus, national income is defined as the money value of all final goods
and services produced by a country during a period of one year. National income consists of
goods and services of different types.
According to Simon Kuznets, “It is the net output of commodities and services flowing
during the year from the country’s productive system in the hands of ultimate consumers”
According to Marshall: “The labour and capital of a country acting on its natural resources
produce annually a certain net aggregate of commodities, material and immaterial including
services of all kinds. This is the true net annual income or revenue of the country or national
dividend.”
According to Colin Clark, national income for any period consists of the money value of the
goods and services that become available for consumption during that period, reckoned at
their current selling prices, plus additions to capital reckoned at the prices actually paid for
new capital goods, minus depreciation and obsolescence of existing capital goods, and adding
or subtracting the net accretion of, or deducting the net accretion of, the net accretion of, the
net accretion of
As a result, a country's national income can be measured in three ways:
(a) as the sum of all cash and kind incomes accruing to factors of production in a given time
period, i.e. the total of income flows; (b) as the sum of net outputs arising in various sectors
of the nation's production; (c) as the sum of consumer spending, government spending on
goods and services, and net capital spending.
National Income Aggregates
1. GROSS NATIONAL PRODUCT
The gross national product (GNP) is the most important and extensively used indicator of
national revenue. It is the most thorough assessment of the country's producing operations.
The entire market value of all final goods and services generated by ordinary citizens of a
country in a year is known as the Gross National Product (GNP). plus nationals' revenues
earned abroad minus foreigners' incomes earned locally The term "gross national product"
(GNP) is synonymous with "gross national income" (GNI). As a result, GNP = GNI. There is
just a procedural difference between the two. While the GNP is calculated using product
flows, the GNI is calculated using money income flows.
Two things must be noted in regard to gross national product:
, 1. It measures the market value of annual output. GNP is a monetary measure. There is no
other way of adding up the different sorts of goods and services produced in a year except in
terms of their money prices. But in order to know accurately the changes in physical output
over time, the figure for gross national product is adjusted for price changes.
2. To accurately calculate gross national product, all products and services generated in any
given year must be tallied only once. Before reaching a market, most commodities go through
a succession of production phases. As a result, many things' parts or components are acquired
and sold multiple times. As a result, gross national product only includes the market value of
finished items and overlooks transactions involving intermediate goods to prevent duplicate
counting the parts of goods that are sold and resold.
Final goods are ones that are bought for their intended purpose and not for resale or further
processing. To put it another way, final goods are items that are consumed rather than
employed to make another good. An automobile sold to a consumer, for example, is a final
good; nevertheless, components sold to the car manufacturer, such as tyres, are intermediate
goods used to build the final good. If the same tyres were sold to a consumer, they would be
considered a finished good. When calculating national income, only finished items are taken
into account. If intermediate goods were included too, this would lead to double counting -
for example, the value of the tires would be counted once when they are sold to the car
manufacturer, and again when the car is sold to the consumer. Only newly manufactured
items are counted. Existing goods transactions, such as second hand vehicles, are excluded
since they do not involve the creation of new commodities. Income is counted as part of GNP
based on who owns the production components rather than where the production occurs.
Because the capital employed in manufacturing (the factory, machinery, etc.) is German
owned, profits from a German-owned automobile plant operating in the United States would
be counted as part of German GNP rather than US GNP. The earnings of the American
workers would be counted as part of the US economy, while the salaries of any German
workers on the job would be counted as part of the German economy. GNP can be calculated
using the following formula:
GNP= GDP + Net factor income from abroad
Where,
Net factor income from abroad is the difference between income earned in foreign countries
by residents of a country and income earned by non-residents in that country.
GNP helps to measure the contribution of residents of a country to the flow of goods and
services within and outside the national territory. Hence, GNP is the core concept of national
income accounting.
Gross national product has the following components:
National income is the sum total of the value of all the goods and services manufactured by
the residents of the country, in a year. Within or without the confines of its own home. It is
the net amount of income earned by citizens in a given year as a result of their labour.
National income, to be more specific, is the total dollar worth of all final goods and services
generated in a country over a given fiscal year. The computation of national income is critical
since it reflects the overall health of our economy for that year.
Data on national income is used to calculate a country's overall economic performance. The
primary goal of national income is to shed light on aggregate output and income and provide
a foundation for the government to design policies and programmes that promote the people's
national welfare. Central Statistical organisation calculates the national income in India.
Why is National Income Important
1. Setting Economic Policy- National Income indicates the status of the economy and
can give a clear picture of the country’s economic growth. National Income statistics
can help economist in formulating economic policies for economic development.
2. Inflation and Deflationary Gaps- For timely anti-inflationary and deflationary
policies, we need aggregate data of national income. If expenditure increases from the
total output, it shows inflammatory gaps and vice versa.
3. Budget Preparation- The country's budget is heavily reliant on net national income
and related ideas. To avoid cynical policies, the government creates the annual budget
with the support of national income information.
4. Standard of Living- National income data assists the government in comparing the
standard of living amongst countries and people living in the same country at different
time.
5. Defence and Development: Estimates of national income allow us to divide the
country's national product into two categories: defence and development. We can
simply determine how much money can be set aside for the defence budget based on
these numbers.
National Income Definition-
National income is the monetary value of a country's final commodities and services
generated over a specific time period. Between G.N.P. and N.N.P., Keynes' idea of national
income falls somewhere in the middle. He deducts only the "User Cost" from G.N.P., i.e. the
drop in the value of capital equipment that is actually used rather than complete depreciation.
According to the modern definition, national income is the total factor income generated by
the nation's economy's present production of goods and services.
,The nation’s economy refers to the factors of production supplied by the normal residents of
the national territory. Thus, national income is defined as the money value of all final goods
and services produced by a country during a period of one year. National income consists of
goods and services of different types.
According to Simon Kuznets, “It is the net output of commodities and services flowing
during the year from the country’s productive system in the hands of ultimate consumers”
According to Marshall: “The labour and capital of a country acting on its natural resources
produce annually a certain net aggregate of commodities, material and immaterial including
services of all kinds. This is the true net annual income or revenue of the country or national
dividend.”
According to Colin Clark, national income for any period consists of the money value of the
goods and services that become available for consumption during that period, reckoned at
their current selling prices, plus additions to capital reckoned at the prices actually paid for
new capital goods, minus depreciation and obsolescence of existing capital goods, and adding
or subtracting the net accretion of, or deducting the net accretion of, the net accretion of, the
net accretion of
As a result, a country's national income can be measured in three ways:
(a) as the sum of all cash and kind incomes accruing to factors of production in a given time
period, i.e. the total of income flows; (b) as the sum of net outputs arising in various sectors
of the nation's production; (c) as the sum of consumer spending, government spending on
goods and services, and net capital spending.
National Income Aggregates
1. GROSS NATIONAL PRODUCT
The gross national product (GNP) is the most important and extensively used indicator of
national revenue. It is the most thorough assessment of the country's producing operations.
The entire market value of all final goods and services generated by ordinary citizens of a
country in a year is known as the Gross National Product (GNP). plus nationals' revenues
earned abroad minus foreigners' incomes earned locally The term "gross national product"
(GNP) is synonymous with "gross national income" (GNI). As a result, GNP = GNI. There is
just a procedural difference between the two. While the GNP is calculated using product
flows, the GNI is calculated using money income flows.
Two things must be noted in regard to gross national product:
, 1. It measures the market value of annual output. GNP is a monetary measure. There is no
other way of adding up the different sorts of goods and services produced in a year except in
terms of their money prices. But in order to know accurately the changes in physical output
over time, the figure for gross national product is adjusted for price changes.
2. To accurately calculate gross national product, all products and services generated in any
given year must be tallied only once. Before reaching a market, most commodities go through
a succession of production phases. As a result, many things' parts or components are acquired
and sold multiple times. As a result, gross national product only includes the market value of
finished items and overlooks transactions involving intermediate goods to prevent duplicate
counting the parts of goods that are sold and resold.
Final goods are ones that are bought for their intended purpose and not for resale or further
processing. To put it another way, final goods are items that are consumed rather than
employed to make another good. An automobile sold to a consumer, for example, is a final
good; nevertheless, components sold to the car manufacturer, such as tyres, are intermediate
goods used to build the final good. If the same tyres were sold to a consumer, they would be
considered a finished good. When calculating national income, only finished items are taken
into account. If intermediate goods were included too, this would lead to double counting -
for example, the value of the tires would be counted once when they are sold to the car
manufacturer, and again when the car is sold to the consumer. Only newly manufactured
items are counted. Existing goods transactions, such as second hand vehicles, are excluded
since they do not involve the creation of new commodities. Income is counted as part of GNP
based on who owns the production components rather than where the production occurs.
Because the capital employed in manufacturing (the factory, machinery, etc.) is German
owned, profits from a German-owned automobile plant operating in the United States would
be counted as part of German GNP rather than US GNP. The earnings of the American
workers would be counted as part of the US economy, while the salaries of any German
workers on the job would be counted as part of the German economy. GNP can be calculated
using the following formula:
GNP= GDP + Net factor income from abroad
Where,
Net factor income from abroad is the difference between income earned in foreign countries
by residents of a country and income earned by non-residents in that country.
GNP helps to measure the contribution of residents of a country to the flow of goods and
services within and outside the national territory. Hence, GNP is the core concept of national
income accounting.
Gross national product has the following components:
