Define National Income 263sw

Define National income what are its different concepts. The concept of National Income has strongest and important position in Macro Economics. Cambridge Economist like Robertson, Pigou, and Marshall & Keynes firstly introduces this concept. When they presented Cambridge approach of QTM (quantity theory of money). Then in 1936, Keynes presented his general theory. National income determination gets due importance. With such beginning the national income and its allied concept were presented from time to time by the Economists. The measurement of national income is not an easy task. It requires a number of scientific approaches. Which are the bases of its measurement. However these approaches are not the guarantee of its accurate figuration of national income. However there are some precautions, which we have to keep in mind at the time of its measurement. These precautions can take us round about actual estimate.

Definition: Prof. Marshall in his book “Principles of Economics” defines National Income as “Sum of all the physical goods produced and services provided by utilizing the natural resources of the country with the help of labor and capital.

Pigou defined National Income as “Only those goods and services will be included in NI which are sold against money”

Post Keynesian Economists defined National Income in a better way. “They say that NI is like three flows which flow at the same time. Such flows by names are: 1.Income, 2.Outputs, 3. Expenditures. Firstly Economists Presented the concepts of National Income but after that a lot of work done for the improvement of the concept of National Income. Economists presented or derived six concept of National Income. Now we discuss them in detail.

1. Gross National Product. The labour & capital of a country working on its natural resources produced a certain aggregate of commodities, material & non material every year. This constitutes the gross national product or the gross national income of a country. If we make a detailed list of all

such commodities produced annually or measure the total goods produced during a year by weight or by volume, it will not give us clear & concise impression about total national output. So what generally done is that the money value of all final goods and services produced during a year at market price is added up. This monetary measure of finally total output is named as the gross National product (G.N.P) We can write it as. G.N.P = C+I+G+(X – M)

Components of G.N.P i.

Personal consumption expenditure: (C). The amount of consumption, which is consumed in the form of goods & Services.

ii.

Gross domestic investment (I): The amount spent by private business & non-profit institutions on private Buildings replacement, renewal & new investment. iii.

Government purchases of goods and services (G). The government expenditure on durable & non-durable goods & services is Included under this head. iv.

Exports & Imports: Import & exports are included in G.N.P.

2. Net National Product. Net National Product at market prices is the net money value of all the final goods and services produced in a country during a year. It is found out by subtracting the amount of depreciation of the existing capital in a year from the market value of all final goods and services. So, N.N.P=G.N.P – Depreciation. i.

N.N.P at market Price.

Net National Product at market price is the net value of final goods and services evaluated at market prices in the course of one year in a country. If we deduct depreciation from G.N.P. at market prices, we get N.N.P. at market price. ii.

N.N.P. at Factor Cost. It includes income earned by factors of production through participation in the process such as wages, salaries rents, profits, etc. We can write it’s as, N.N.P at factor cost=N.N.P at market price – indirect taxs + subsidies.

3. Gross Domestic Product: Incomes earned by the factors of production within a country from its own resources are called domestic income or domestic product. Domestic income includes: i. ii. iii. iv. v. vi. vii.

Wages & Salaries. Rents. Interest. Dividends. Undistributed corporate profits, including surpluses of public sector undertakings. Mixed incomes consisting of profit of UN incorporated firms, self employed persons, Partnerships etc. Direct Taxes.

We can write it as. G.D.P=G.N.P – Foreign Income.

4. National Income. National Income is an uncertain term which is used interchangeably with National dividend, National output & national expenditure. On these bases National income has been defined in a number of wages. The definitions of National income can be grouped into tow classes. i. The Marshallian definition. ii. Modern definition. We get National income by deducting indirect taxes & adding subsidies in gross national product. We can write it as. N.I=G.N.P – Indirect taxes+Subsidies.

5. Personal Income (P.I) Personal Income is the total income received by the individuals of a country from all sources before direct taxes in one year. Personal income is equal to national income, because personal

income includes the transfer payments whereas. They are not included in national income. Personal income is derived from National income by deducting undistributed corporate profits, profit taxes & employees contributions of social security schemes. We can write it as. Personal Income= National income – corporate taxes – undistributed corporate profits – social security contributions + transfer payments.

6. Disposable Personal Income Disposable Personal income means the actual income which can be spent on consumption by individuals & families. The whole of the personal income cannot be spent on consumption, because it is the income that accures before direct taxes have actually been paid. Therefore, in order to obtain the disposable income, direct taxes are deducted from personal income as. D.P.I=Personal Income – direct Taxes.