Define National income what are its different

concepts.

The concept of National Income has strongest and important position

in Macro Economics. Cambridge Economist like Robertson, Pigou, and
Marshall & Keynes firstly introduces this concept. When they presented
Cambridge approach of QTM (quantity theory of money). Then in 1936,
Keynes presented his general theory. National income determination
gets due importance. With such beginning the national income and its
allied concept were presented from time to time by the Economists.

The measurement of national income is not an easy task. It requires a

number of scientific approaches. Which are the bases of its
measurement. However these approaches are not the guarantee of its
accurate figuration of national income. However there are some
precautions, which we have to keep in mind at the time of its
measurement. These precautions can take us round about actual
estimate.

Definition:
Prof. Marshall in his book “Principles of Economics”
defines National Income as “Sum of all the physical goods produced
and services provided by utilizing the natural resources of the country
with the help of labor and capital.

Pigou defined National Income as “Only those goods and services

will be included in NI which are sold against money”

Post Keynesian Economists defined National Income in a better

way. “They say that NI is like three flows which flow at the same time.
Such flows by names are: 1.Income, 2.Outputs, 3. Expenditures.

Firstly Economists Presented the concepts of National Income but after

that a lot of work done for the improvement of the concept of National
Income. Economists presented or derived six concept of National
Income. Now we discuss them in detail.

1. Gross National Product.

The labour & capital of a country working on its natural

resources produced a certain aggregate of commodities, material &
non material every year. This constitutes the gross national product or
the gross national income of a country. If we make a detailed list of all
such commodities produced annually or measure the total goods
produced during a year by weight or by volume, it will not give us clear
& concise impression about total national output.

So what generally done is that the money value of all final goods and
services produced during a year at market price is added up. This
monetary measure of finally total output is named as the gross
National product (G.N.P)

We can write it as. G.N.P = C+I+G+(X – M)

Components of G.N.P

i. Personal consumption expenditure: (C).

The amount of consumption, which is consumed in the
form of goods &
Services.

ii. Gross domestic investment (I):

The amount spent by private business & non-profit
institutions on private
Buildings replacement, renewal & new investment.

iii. Government purchases of goods and services (G).

The government expenditure on durable & non-durable goods
& services is
Included under this head.

iv. Exports & Imports:

Import & exports are included in G.N.P.

2. Net National Product.

Net National Product at market prices is the net money value

of all the final goods and services produced in a country during a
year. It is found out by subtracting the amount of depreciation of the
existing capital in a year from the market value of all final goods and
services.

So, N.N.P=G.N.P – Depreciation.

i. N.N.P at market Price.

 Net National Product at market price is the net value of
final goods and services evaluated at market prices in the course of
one year in a country. If we deduct depreciation from G.N.P. at
market prices, we get N.N.P. at market price.

ii. N.N.P. at Factor Cost.

It includes income earned by factors of production through
participation in the process such as wages, salaries rents, profits,
etc. We can write it’s as, N.N.P at factor cost=N.N.P at market price
– indirect taxs + subsidies.

3. Gross Domestic Product:

Incomes earned by the factors of production within a
country from its own resources are called domestic income or
domestic product. Domestic income includes:

i. Wages & Salaries.

ii. Rents.
iii. Interest.
iv. Dividends.
v. Undistributed corporate profits, including surpluses of public
sector undertakings.
vi. Mixed incomes consisting of profit of UN incorporated firms,
self employed persons, Partnerships etc.
vii. Direct Taxes.

We can write it as. G.D.P=G.N.P – Foreign Income.

4. National Income.

National Income is an uncertain term which is used

interchangeably with National dividend, National output & national
expenditure. On these bases National income has been defined in a
number of wages. The definitions of National income can be grouped
into tow classes. i. The Marshallian definition. ii. Modern definition.

We get National income by deducting indirect taxes & adding subsidies

in gross national product. We can write it as. N.I=G.N.P – Indirect
taxes+Subsidies.

5. Personal Income (P.I)

Personal Income is the total income received by the

individuals of a country from all sources before direct taxes in one
year. Personal income is equal to national income, because personal
income includes the transfer payments whereas. They are not included
in national income. Personal income is derived from National income
by deducting undistributed corporate profits, profit taxes & employees
contributions of social security schemes.

We can write it as.

Personal Income= National income – corporate taxes –
undistributed corporate profits – social security contributions +
transfer payments.

6. Disposable Personal Income

Disposable Personal income means the actual income which
can be spent on consumption by individuals & families. The whole of
the personal income cannot be spent on consumption, because it is the
income that accures before direct taxes have actually been paid.
Therefore, in order to obtain the disposable income, direct taxes are
deducted from personal income as. D.P.I=Personal Income – direct
Taxes.