NATIONAL INCOME
MODULE-1
BASIC CONCEPTS
National income of a country is the total value of all final goods and services produced in the country in a particular period of time.
MEASURES OF NATIONAL INCOME
- GROSS DOMESTIC PRODUCT
Total value of all final goods and services produced within the boundary of the country during a given period of time. Here the produce of resident citizens as well as foreign nationals who reside within that geographical boundary is considered.
- NET DOMESTIC PRODUCT
The net domestic product (NDP) is an annual measure of the economic output of a nation that is adjusted to depreciation and is calculated by substracting depreciation from the gross domestic product (GDP)
Net domestic product (NDP) accounts for capital that has been consumed over the year in the form of housing, vehicle, or machinery deterioration. The depreciation accounted for is often referred to as wear and tear of goods produced.
NDP=GDP−Depreciation
- GROSS NATIONAL PRODUCT
GNP measures the output of a country’s residents regardless of the location of the actual underlying economic activity.
Income from overseas investments by a country’s residents counts in GNP, and foreign investment within a country’s borders does not. This is in contrast to GDP which measures economic output and income based on the location rather than nationality.
GNP and GDP can have different values, and a large difference between a country’s GNP and GDP can suggest a great deal of integration into the global economy.
GNP = GDP + Net factor income from abroad
- NET NATIONAL PRODUCT
Net national product (NNP) is gross national product (GNP), the total value of finished goods and services produced by a country’s citizens overseas and domestically, minus depreciation.
NNP is often examined on an annual basis as a way to measure a nation’s success in continuing minimum production standards.
Gross Domestic Product (GDP) is the most popular method to measure national income and economic prosperity, although NNP is prominently used in environmental economics.
NNP = GNP – DEPRECIATION
COST
Factor cost: Total cost of all factors of production consumed or used in producing a good or service.
Basic Prices: The basic price is the amount receivable by the producer from the purchaser for a unit of a good or service produced as output minus any tax payable, plus any subsidy receivable, on that unit as a consequence of its production or sale.
Market price: Market price is the price at which a product is sold in the market. It includes the cost of production in the form of wages, rent, interest, input prices, profit etc. It also includes the taxes imposed by the government. When the governments doll out subsidies for the producers that also would be reflected in the price.
Basic Price = Factor Cost + Production taxes – Production Subsidy
Market Price = Basic Price + Production taxes – Production Subsidy
PREVIOUS YEARS QUESTIONS
- The term National Income represents (2001)
- Gross national product at market prices minus depreciation
- Gross national product at market prices minus depreciation plus net factor income from abroad
- Gross national product at market prices minus depreciation and indirect taxes plus subsides
- Gross national product at market prices minus net factor income from aboard
- The national income of a country for a given period is equal to the (2013)
- total value of goods and services produced by the nationals
- sum of total consumption and investment expenditure
- sum of the personal income of all individuals
- money value of final goods and services produced
- With reference to Indian economy, consider the following statements: (2015)
- The rate of growth of Real Gross Domestic Product has steadily increased in the last decade.
- The Gross Domestic Product at market prices (in rupees) has steadily increased in the last decade.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2
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