What is National Income?
National Income is an estimated value of all finished goods produced and services provided by a country during a financial year. It is the monetary worth that usually specifies the net worth of any nation in the current global economy. In India, the Central Statistics Office (CSO) of the Ministry of Statistics and Programme Implementation has been measuring NI since its independence.
The fundamental reason to calculate a country's national income is to gain knowledge of the quantity of output and income. It provides the premise for the government to formulate its policy, programs. It also helps to maximize the national welfare of the people.
What are the common methods to measure national income?
Income Method
The income method focuses on the perspective of production. Now production of goods and services involves the resources like land, labor, capital, and so on. Since these factors of production, a nation can generate its income via rent, wages and salaries, profits, and interest. These are called manufacturing factors.
Mixed-income is another crucial factor that refers to the income generated by self-employed experts and sole proprietors.
According to the income method:
National Income = Manufacturing factors + Mixed-Income
Expenditure Method
The expenditure method concentrates on the outgoings that occurred during all the purchases made by residents, government, or business enterprises. The expenditure method considers the following elements:
- Purchase of goods and services by consumers (residents and households ) (C)
- Government expenditure on goods and services (G)
- Business enterprises' expenses on capital goods and stocks (I)
- Net exports (exports-imports) (NX)
Hence, according to the expenditure method:
National Income = C + G + I + NX
However, the expenditure method excludes expenditure on second-hand goods and the purchase of shares and bonds.
We can reckon different national incomes with the following factors:
- Residents (R)
- Non-Residents (NR)
- Domestic Expense / Income (D)
- Abroad Expense / Income (A)
Gross Domestic Product
GDP is also known as Gross Domestic Income, which refers to the aggregate value of finished goods and services via all economic activities. The GDP only focuses on the commodities and services produced within a territory. Anyone can provide their values at a specified price.
We can include all the residents and non-residents who are manufacturing and selling their items in a country.
GDP = [R, D] + [NR, D]
Gross National Product
GNP includes the output of all residents in various territories.
GNP = [R,D] + [R, A]
Net Factor Income from Abroad
NFIA is the difference between the net worth of residents in foreign and the net worth of foreign investors in the home country. In other words, net factor income from abroad is the difference between the total values of the primary incomes receivable from and payable to non-residents.
NFIA = [R, A] - [NR, D]
Per Capital Income
PCI defines the income of each citizen in a country, and it determines their wealth. It is the ratio of Net National Product and population of the nation.
PCI = NNP / Population
Net National Product (NNP) = GNP - Depreciation
Net Domestic Product (NDP) = GDP - Depreciation
Depreciation is an accounting method of allocating the cost of a tangible or physical asset over its useful life or life expectancy.
National Income (NI) = GDP + NFIA
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