NATIONAL INCOME National Income, broadly speaking, refers to “TOTAL

NATIONAL OUTPUT ” or ‘value of the nation’s output, during a specific (usually one year). There are three different ways of looking at the value of a nation’s output, viz…, Gross National Product (GNP), Gross National Income (GNI), Gross National Expenditure (GNE) Total respectively:-

(1) GNP is the sum of the value added of all firms in the same period value of the final goods and services produced.

(2) GNI values national output as a sum total of the payments made to factors of production for their services in the production or alternatively, the earnings received by various factors.

(3) GNE values national output by taking the value of expenditure on goods and services produced (that is, aggregate expenditure on consumption and investment).

Cont…

The terms ”Gross National Product. Gross National Income & Gross National Expenditure may be used synonymously. In principle, these three variants will always be equal, that is GNP=GNI=GNE. However, in practice for some statistical data problem, statistical discrepancy may arise.

MEASURING NATIONAL INCOME

CALCULATION OF THE

NATIONAL INCOME

PRODUCTION METHOD

INCOME METHOD

EXPENDITUREMETHOD

MEASURING NATIONAL INCOME

PRODUCTION METHOD 1. Also known as value added method.2. This method consists of the Net Value of all

commodities and services produced in the various sectors of the economy during a year and adding them up. The total obtained is called final product total..

3. 1st of all, economy of the country is divided into different sectors such as agriculture , manufacturing, trade, banking, mining, etc. The value of gross product of all the producers in a sector is totaled up and from this summation is subtracted the value of intermediate products in order to avoid double counting, it makes our GNP.

Cont…4. It may be noted that only final goods and services are included and

other goods known as intermediate goods are excluded to avoid double counting.

FINAL GOODS :- Those goods which are purchased for final use, and not for resale.

INTERMEDIATE GOODS:- those goods which are purchased for resale.

The value of final output already includes the value of intermediate goods.

FOR E.G…, The value of furniture already includes the value of wood used in it. That’s why to avoid double counting value of final output is taken.

Cont…Secondly…, an increase in inventory must be considered A final good because it involves current production (orvalue added).

Thirdly…, the value of homework by a house wife e.g., Cooking, banking and cleaning does not enter gnp, butrestaurant's cook’s product does enter into gnp.

Fourthly…, illegal income is not included in in gnpBecause its counting not possible as they are most often Not divulged and as such cannot be accounted for.

Fifthly…, in case of goods and services meant for selfconsumption or self consumption for e.g., farmer’sproduce kept aside for self consumption, imputed values of such

produce or imputed rent is inclyded in rent.

INCOME METHOD(1). Also called factor income method.

(2). This method measures the national income after it has been distributed and appears as income earned or received by individuals of the country.

(3). N I is obtained by totaling all the incomes according to the various factors of production used in producing the national product, For e.g…, N I is calculated by adding up the rent of land, wages, salaries of employers, interest on capital and income of self employed people.

(4). Thus the total factor incomes are grouped under three categories:- (1) labour incomes, (2) capital incomes, (3) mixed incomes.

EXPENDITURE METHOD National income under this method is arrived at by adding up

all the expenditure made on the goods and services during the specific period.

Also known as FINAL PRODUCT METHOD.As such, GNP is found out by totalling:- C + I + ( X – I ) + G

• In estimating the total expenditure any of the two following methods are followed:-

(1). All money expenditures at market price are computed and added up together. (2). The value of all the product finally disposed of are computed and added up, to arrive at total national expenditure.• The item of expenditure which are taken into account under the

first method are:-1. Private consumption expenditure2. Direct tax payments,

Cont…3. Payment to the non profit-making institution

& charitable organisation like schools hospitals4. Private savings.

• Under the second method, the following items are considered:-

1. Private consumer goods & services,2. Private investment goods,3. Public goods & services,4. Net investment abroad.

• The second method is most extensively used because of greater ease and accuracy.

CONCEPTS OF NATIONAL

INCOME

GROSS NATIONAL PRODUCT (GNP)

NET NATIONAL PRODUCT (NNP)

PERSONAL INCOME (PI)

DISPOSABLE INCOME (DI)

PRIVATE INCOME (PI)

NATIONAL INCOME (NI)

TERMS IN THE APPROCH OF

NATIONAL INCOME• Gross National Product: The GNP is defined

as the value of all final goods and services produced during a specific period.

• Net National Product: NNP is defined as GNP less

• depreciation, i.e., NNP =GNP-depreciation.Personal income: Personal income measures

income from all sources. The largest component of total income is wages and salaries. Beyond that, there are many other categories of income, including rental income, government subsidy payments, interest income,

Cont…

Disposable Income: The amount of income left to an individual after taxes have been paid, available for spending and saving.

Private income: Private income is either:

• any type of income received by a private individual or household, often derived from occupational activities, or

• income of an individual that is not in the form of a salary (e.g. income from investments).

Cont…

National Income: National Income is the money value of the end result of all economic activities of the nation.

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