National Income (N.I.) | Calculation Methods | GDP | GNP


National Income (N.I.)

  • Economic growth is the change – increase or decrease in the value of goods and services produced by an economy. If it is positive, it means an increase in the output and the income of a country.
  • National Income: (NI)
    • National income is calculated by deducting indirect taxes from net national product and adding subsides. National Income (NI) is the NNP at factor cost.
    • NI= NNP- Indirect taxes + subsidies.
  • There are three ways of calculating national income they are
    • Income method
    • Expenditure method
    • Product method

Gross Domestic Product (GDP)

  • Monetary value of all final goods and services produced in the domestic territory of a country during a year.
  • Domestic territory includes country’s boundaries, embassies / consulates, abroad military establishments; ships/aircrafts/ Fishing vessels /oil rigs belongings to residents of the country.
  • Capital goods (e.g. machinery) are included in GDP, but intermediate goods (e.g. raw materials) are not.
  • Same good can be final (you consuming milk) or intermediate (milk in the restaurant) depending on the usage.
  • Intermediate goods and services are not included to avoid double counting.
  • Will include the income generated by MNCs in India.
  • Per Capita Income is per capita GDP: GDP divided by midyear population of the corresponding year.
  • Net* Domestic Product (NDP) = GDP –Depreciation

Gross National Product (GNP)

  • GNP is the total value of final goods and services by normal residents of India within an accounting year. GDP includes the contribution made by non-resident producers -who work in the domestic territory of other countries -by way of wages, rent, interest and profits.
  • For example, the income of all people working in Indian banks abroad is the factor income earned abroad. Net factor income from abroad is the difference between the income received from abroad for rendering factor services and the income paid for the factor services rendered by non-residents in the domestic territory of a country. GNP is, thus, the sum of GDP and net factor incomes from abroad.
  • In brief:
    • GNP = GDP + NFIA (net factor income from abroad).
      • NFIA may be positive or negative. In case of India, it is negative; so our GDP > GNP
    • Net value = Gross –Depreciation
    • In the production process a country uses machines and equipments. When there is depreciation, we have to repair or replace the machinery. The expenses incurred for this are called the depreciation expenditure.
    • Net* National Product (NNP) = GNP – Depreciation
      • NNP = NDP + NFIA

*Theoretically ‘net’ is a better measure of the health of an economy than ‘gross’ but it is difficult to estimate net values –so GDP & GNP are commonly used measures.




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