national income concept

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AMMU.C NATIONAL INCOM CONCEPT National income is an uncertain term which is used interchangably with national dividend, national product and national expenditure. On this basis national income has been defined in a number of ways National income is the total value of goods and services produced annually in a country. In otherworld's National Income s the total amount of income acquiring to a country from economic activity in a year. It includes all incomes in the form of wage, interest, rent and profit. It refers to the countrys total out put of final goods and services in real term rather than money term.Definition The National Income Committee of India defined National Income as it measures the volume of commodities and services turned out during a given period and counted without duplication. Important of the study of National Income The study occupies vital importance in modern days It furnishes information about the existing economic conditions of the nation. The study also enables the government to execute policies and programmers' through the fiscal and monetary operations.

National income statistics will enable the government o form guide lines for solving the current economics problems and for achieving its economical goals. National income date are also helpful for the research scholars of the country. NATIONAL ICOME CONCEPT Economist have distinguished five concept of National Income. They are; Gross National Product {GNP} Net National Product {NNP} National Income at Factor Cost {NI} Personal Income Disposable Personal Income Gross Domestic Product {GDP} Gross National Product (GNP) GNP refers to the money value of final goods and services produced by the nationals of the country during a given period of time, generally a year. The term final goods used in the definition means those finished goods bought for final consumption and not for resale later.8GNP include four types of final goods and services. Consumers goods and services to satisfy the immediate wants of the people. Gross private domestic investment in capital goods consisting of fixed capital formation, residential construction and inventories of finished and unfinished goods. Goods and services produced by the government.Net exports of goods and services of GNP includes the money value of the goods and services produced by all the citizens o a country during a year irrespective of whether they reside inside the country or outside. GNP= GDP+ Net Income from abroad. ie. GNP = GDP +X-M X= Income earned and received by nationals within the boundaries of foreign countries. M= Income received by foreign nationals.

NNP(Net National Product] The second important concept of national income is that Net National Product. NNP is the net money value of final goods and services produced at current prices in the course of one year in a country. Machinery, tools, equipment etc are using for using the production of a thing. These equipments are subjected to wear and tear. Thus depreciation is the allowances set apart for meeting wear and tear expanses. When charges for depreciation are deducted from the Gross National Product we get the Net National Product. So NNP = GNP-Depreciation NNP can also be estimated both at market price and at factor cost. NNP at market price can be obtained by deducting depreciation from GNP at market price. There exist a close interrelation between NNP at market price is always higher than the NNP at factor cost. However the NNP at factor cost equals the cost of production. NI or National Income at Factor Cost National Income at factor cost means the sum of all incomes earned by resource suppliers for their contribution of land, labour, capital and entrepreneurial ability which go into years net production. National Income at factor cost is defined as the value of all final goods and services produced in a year measured at factor cost. It is obtained by deducting the indirect taxes like excise and sales taxes from the NNP at market prices and adding it to subsidies. ie, NI= NNP-Indirect Taxes + Subsidies. PERSONAL INCOME The income actually received by individuals or households in a country during one year is known as personal income. It consists of wages, profits, interests and rents. It also includes transfer payments like pensions, unemployment allowances, relief payments etc. made to those who receive such payments. Generally firms do not distribute among the factors of the profit Is retained by enterprises. In practice, the the firms have to pay a part of their income to get personal income. Thus PI = private income undistributed profit -corporate taxes . DISPOSABLE PERSONAL INCOME It is the part of the personal income which is actually available to individuals and households for actual consumption and saving. All the personal income received by the households cannot be spend by them all their will. The individuals for example, have to pay personal direct taxes, such as income tax, education tax, fire tax, etc. Similarly, they have also to pay fines and penalties for violating the rules and regulations prescribed by the administration. In order to arrive at the personal disposable income, direct taxes and penalties paid by the households should be deducted from the personal incomes. PDI = Personal income-Personal direct taxes fines, fees, etc. Gross Domestic Product {GDP} Gross Domestic Product is the money value of all goods and services produced in the domestic territory of a country during a year. The various production units engaged in the production of goods and services in a produce certain amount of goods and services. It is to be noted in this regard that the production of final goods and services alone is taken into account for estimating GDP. Intermediate goods and services are excluded from gross domestic product. GDP can be estimated both at market prices and a factor costs. GDP at Market Price GDP at Market Prices is the money value of all goods and services produced in the domestic territory of a country during one year estimated at the prices prevailing in the market. Market price is the current prices prevailing in the market. Gross Domestic Product at Factor Cost it is an estimation of gross domestic product in terms of the earnings of factors of production. GDP at a factor cost is the gross value added at factor cost by the producers in an economy. It is the sum total of the earnings received by the factors of production in terms of wages, rent, interest

etc. It is equal to the GDP at market price minus indirect taxes plus subsidies. Valuation at factor cost displays the composition of the gross domestic product in terms of the factors of production employed, the contributions of the factors being measured by the incomes they received.

GDP= GNP FY Where FY, stands for net income from foreign countries. If the value of FY is positive, it will be subtracted from GNP and if the value of FY is negative it will be added to the GNP in order to arrive at the GDP.