Concepts of National Income
NCERT Class 12 • Introductory Macroeconomics • Chapter "National Income Accounting" | NCERT Class 10 • Economics • Chapter "Development"
Concepts of National Income
National income is the total money value of all final goods and services produced in a country during one year. It is the single most used measure of the size of an economy, and several related terms describe it from different angles depending on whether depreciation, foreign income and taxes are included.
The Main Aggregates
- Gross Domestic Product or GDP is the value of all final goods and services produced within the country's boundary in a year, no matter who produces them.
- Gross National Product or GNP is GDP plus net factor income from abroad, that is income earned by residents outside minus income earned by foreigners inside.
- Net Domestic Product or NDP is GDP minus depreciation, the wear and tear of capital.
- Net National Product or NNP is GNP minus depreciation, and NNP at factor cost is taken as national income.
- At market price includes indirect taxes and excludes subsidies; at factor cost removes indirect taxes and adds subsidies back.
- Per capita income is national income divided by total population and is used to compare living standards.
Measurement and Real versus Nominal
- Product or value added method adds the value added at each stage of production.
- Income method adds all factor incomes: rent, wage, interest and profit.
- Expenditure method adds consumption, investment, government spending and net exports.
- All three methods should give the same total, since one person's spending is another's income.
- Nominal income is measured at current year prices, so it rises when prices rise even if output is the same.
- Real income is measured at the prices of a fixed base year, so it shows the true change in output.
| Term | Formula |
|---|---|
| GNP | GDP plus net factor income from abroad |
| NDP | GDP minus depreciation |
| NNP | GNP minus depreciation |
| National income | NNP at factor cost |
Depreciation — the loss in the value of capital goods due to wear, tear and obsolescence during the year.
Hindi me samjhein
सकल का अर्थ है मूल्यह्रास घटाने से पहले, और शुद्ध का अर्थ है मूल्यह्रास घटाने के बाद। घरेलू का अर्थ है देश की सीमा के भीतर, और राष्ट्रीय का अर्थ है देश के निवासियों द्वारा।
Exam me kaise aata hai
- GNP equals GDP plus — net factor income from abroad
- National income is measured as — NNP at factor cost
- GDP minus depreciation gives — NDP
- Income measured at base year prices is called — real income
UPSC/State PSC ke liye
- The GDP deflator is the ratio of nominal to real GDP and is itself a broad measure of the price level.
- Per capita income is an average, so it hides inequality; two countries with the same average can have very different distributions.
Yahan confuse hote hain
✗ GDP and GNP are the same | GNP adds net factor income from abroad to GDP | ✓
✗ Gross means after depreciation | Gross is before depreciation; net is after | ✓
✗ Nominal income shows real growth | Real income shows real growth; nominal includes price change | ✓
Ek nazar me
- GDP is output within the boundary; GNP adds net factor income from abroad.
- Net means after depreciation; national income is NNP at factor cost.
- Three methods: product, income and expenditure, all giving the same total.
- Real income uses base year prices; nominal uses current prices.