National Income

 

National Income

National income measures the flow of goods and services within an economy over a specific period, unlike national wealth, which reflects the total value of existing assets at a particular point in time. National income of a country can also be defined as the total monetary value of all goods and services produced within its borders during a financial year. It reflects the outcome of all economic activities taking place in the nation over a one-year period. Thus, it refers to the total earnings generated by a country through various economic pursuits in a year, encompassing both the public and private sectors. It also serves as an important indicator of a country’s economic progress and development.

The main concepts of national income are:

1.       Gross Domestic Product (GDP): This is the market value of all final services and goods produced within a country in a given period of time. The formula of GDP is:

GDP = C + G + I + NX

(where G=government spending, C=consumption,  I=Investment, and NX=net exports).

2.       Gross National Product: This is the market value of all final services and goods produced by a country’s residents in a given period of time, regardless of where they are located. The formula for GNP:

GNP = GDP + NF

(where NF=net factor income from abroad).

3.       National Domestic Product (NDP): This is the market value of all final services and goods produced within a country in a given period of time, minus depreciation. The formula for NDP: 

    NDP = GDP – Depreciation 

4.       Net National Income (NNI): This is GDP minus depreciation. Depreciation is the wear and tear on capital equipment and buildings. The formula for NNI:

     NNI = GDP – Depreciation

5.       National Income (NI): This is NNI minus indirect taxes plus subsidies. Indirect taxes are taxes on the sale of services and goods. Subsidies are payments made by the government to producers.

6.       Personal Income (PI): This is NI minus corporate income taxes plus transfer payments. Transfer payments are payments made by the government to individuals that do not require the recipient to provide any good or service in return. The formula for PI:

PI = GDP – NIT

(where NIT=net indirect taxes).