Read this specific article to learn about the concepts and measurement of national income…

Basic concepts of National Income

The various concepts of national income are categorized into different aspects:

(i) Gross Domestic Product (GDP)

(ii) Gross National Product (GNP)

(iii) Net National Product (NNP)

(iv) Net Domestic Product (NDP)

(v) Per Capita Income (PCI)

1. Gross Domestic Product (GDP):

In GDP, we mean the monetary value of all goods and services produced in one year in a country’s domestic border.

In the economy, production activities continue to run in many areas, in which sugar, cloth, steel, manure, wheat, etc. items and government publication, bank, insurance, and transportation, etc. services are manufactured. The sum of the market value of all these goods and services is known as a gross domestic product.

2. Gross National Product (GNP):

The notion of the gross national product is not only related to the value of the final product which is produced by ordinary residents within the country’s domestic boundary.

The sum of gross domestic product and the pure income from abroad is known as a gross national product.

Formula: GDP + (Exports-Imports).

3. Net National Product (NNP):

The net national product helps to subtract the value of depreciation from the value of the gross national product.

Formula: GNP- Depreciation.

4. Net Domestic Product (NDP):

The only difference between GDP and NDP is that at the market price, the decline in GDP is also included in the expenditure but not included in the NDP.

Formula: GDP – Depreciation.

5. Per Capita Income (PCI):

When the country’s national income is divided into the total population of the country, then the answer which comes is called per capita income.

Formula: National Income / Population.

Methods of Measurement of National Income

The following are some of the most popular methods of measuring national income:

(i) Product or Value Added Method

(ii) Income Method

(iii) Expenditure Method

(iv) Composite Calculation Method.

1. Product or Value Added Method:

According to this method, the sum of the value of all goods and services produced in the country is called national income.

“Production does not mean the census of production, but from net production.” Net production will be considered for the decline in fixed capital from the total production and the cost of changing it. For Example– If a grain of Rs. 160 is produced in a field and its expenditure for replacement is Rs. 50 then the net production will be Rs. 110.

2. Income Method:

According to the income tax method, the sum of the payments of the means of payment of their services in the production of various means of production. The sum is called national income.

If you add the net income earned from abroad in this total sum then the national income is created.

National Income: Wages+Fines+Interest+Dividend+Profit+Corporate Profit Tax+Public Sector Surplus+ Net Income Earned from Abroad+Mixed Income.

Items not be included in the Estimation of National Income by Income Method–

According to the income method, the following are not included in the estimation of national income:-

(i) Income from the sale of old goods, (ii) Illegal income, like smugglers, junkers, (iii) Casual income, like income from the lottery, (iv) All transfer payments, (v) Income from gift tax, death tax, property tax.

3. Expenditure Method:

This is the third method of measuring national income. This method is also known as consumption and investment method because according to this method national income is calculated by adding final consumption and appropriation expenditure.

In short, according to this method, the following conditions are included to find the national income:-

(i) Private final consumption expenditure, (ii) Gross domestic capital formation, (iii) Government final consumption expenditure, (iv) Real (Export expenditure – Import expenditure).

4. Mixed Calculation Method:

According to this method, in various economic areas, the production and income calculation methods are used according to the convenience of income, which is called compound or mixed calculation method.

According to this method, (i) The national income can be calculated according to the production method, in which business figures are available,

(ii) where the production figures can be easily accessed by businessmen and reasons, the calculation of national income can be used,

(iii) After that, the national income can be known by adding the digits obtained from the production calculation method and income calculation method.

Other Related Questions:

1. Explain the different and various concepts of national income??

Ans: The concepts can be classified into various aspects-

(i) Gross Domestic Product (GDP)

(ii) Net National Product (NNP)

(iii) Gross National Product (GNP)

(iv) Per Capita Income (PCI)

(v) Net Domestic Product (NDP)

2. What are the methods to calculate the national income?

Ans: There are various methods or measurement of national income like:-

(i) Product or Value Added Method

(ii) Income Method

(iii) Composite Calculation Method Expenditure Method

(iv) Expenditure Method.