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What is National Income?


National income measures the total value of goods and services produced within the economy over a period of time •National Income can be denoted in different ways with different meaning attached to it.

–Gross Domestic Product (GDP)

–Gross National product (GNP)

–Net National Product (NNP)

–All these at Market Price/ Factor cost

–Also at current price and at fixed price

–Let us see meaning of each of these

Gross Domestic Product (GDP)

GDP measures the value of output produced within the domestic boundaries of the country •GDP includes the output of the foreign owned firms with production plants located in the country •

There are three ways of calculating GDP – all of which should sum to the same amount since by identity:

National Output = National Expenditure = National Income

      Take an Example •Indian working in US ask, what about my Income? •Korean working in Bangalore questions, why my income is part of your National Income? •To adjust this, we need to know •

Net Factor Income from Abroad  = –Factor income sent to the domestic economy by the citizens of the country working abroad Minus –Factor income sent abroad by the foreigners working in the domestic economy .

By adjusting Net Factor Income from Abroad, we get another unit of National Income, i.e. Gross National Product

Gross National Product (GNP)

GNP is the market value of all goods and services produced by the residents of a particular country. •It includes the income of those residents earned by corporations owned overseas and from working abroad. •It is also one of the measure of National Income •

GNP = GDP + Net Factor Income from Abroad •

Difference between National and Domestic is Net factor income from abroad •This income is at the cost of some capital •

What about its depreciation; need to be adjusted •This leads to Net National Product

Net National Product (NNP) •NNP is defined as GNP minus Depreciation. •i.e.

NNP = GNP – Depreciation

NNP is the most complete measure of productive activity by a country’s nationals, though it is measured at market price •I.e. it includes, Indirect taxes and sometimes even subsidies •

How can Nations Income from goods and services include indirect taxes and subsidies?. •

This need to be adjusted to get actual values of National Income »Adjusted NNP will be at factor cost » »Difference between Gross and Net is Depreciation

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