Concepts of National Income

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This article tries to briefly introduce major concepts of national income.
Concepts of National Income

Meaning of Concepts of National Income

The concept of national income provides insight into the economic performance of a nation. National income has been defined in several ways. It may be the total market value of all final goods and services produced by the citizens of the nation during a certain time.

Another way to define national income is that it is the total amount of receipt by all the owners of factors of production of a nation in arrival for their factor contribution in the production process of that country.

Similarly, it is the total quantity of output or quantity of goods and services that all the factors or inputs of a nation produced during a certain time.

To understand the meaning and content of national income, several concepts of national income are needed to deal with. Such components have made the study of national income broad-based and comprehensive.

Major Concepts of National Income

Some of the key concepts of national income are briefly expressed below.

  • Gross Domestic Product (GDP)
  • Net Domestic Product (NDP)
  • Gross National Product (GNP)
  • Net National Product (NNP)
Gross Domestic Product (GDP)

Gross Domestic Product (GDP) is the market value of all newly produced final goods and services within the domestic territory of the country during a year.

Features of GDP

  • It includes only final goods and services produced in the domestic territory of a country regardless of the ownership of the factors.
  • The gross domestic product includes consumption of fixed capital (depreciation)
  • It is estimated at the prevailing prices.
  • GDP includes current productions only
  • It accounts only for economic production which has a market value
  • Transfer payments and capital gains are not included
Net Domestic Product (NDP)

It is the monetary value of all newly produced final goods and services within the domestic territory of a nation after allowing for deprecation. So, GDP minus depreciation gives the value of NDP. That is

NDP=GDP-Depreciation

Gross National Product (GNP)

It is the monetary value of all newly produced final goods and services by the contribution of productive factors of production inside as well as outside the geographic location or territory of a nation. So, GDP plus net factor income from abroad (NFIA) gives the value of NGP. That is

GNP=GDP + NFIA or GNP = NDP+Depreciation+NFIA

Features of Gross National Product

  • It is a broader concept than gross domestic product
  • Measurement of GNP includes income earned by domestic factors of production working in foreign economies.
  • It is concerned with production produced by residents of a country.
  • GNP is the monetary value of final goods and services produced within a geographical territory of a country plus net factor income from abroad.
Net Nation Product (NNP)

It is the net value of output produced by all the national factors of production. It means NNP includes the monetary value of all newly produced final goods and services by the national factors of a nation after allowing for depreciation. GNP minus depreciation gives the value of NNP. That is

NNP=GNP-Depreciation or NNP=GDP+NFIA-Depreciation

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