National Income Accounting and Related Concepts- cseet

National Income

• The total value of goods & services produced annually in a country.

• Includes wages, interest, rent, and profits.

• National Income = Gross National Product (GNP) – Depreciation.

  National Income

  1. Starting Point

  • GDP (Gross Domestic Product)= Value of final goods & services produced within a country.

    • At Market Price → includes taxes – subsidies.

    • At Factor Cost → excludes taxes + adds subsidies.

  2. Adjustments

  • NDP (Net Domestic Product) = GDP – Depreciation

  • GNP (Gross National Product) = GDP + Net Income from Abroad

  • NNP (Net National Product) = GNP – Depreciation

  3. National Income

  • NNP at Factor Cost = National Income(NNP at Market Price – Indirect Taxes + Subsidies).

  4. Personal & Disposable Income

  • National Income → Private Income(Add transfer payments, interest on public debt; deduct social security & public sector surpluses).

  • Private Income → Personal Income(Deduct undistributed corporate profits, profit taxes, contributions to social security).

  • Personal Income → Disposable Income(Deduct direct taxes)→ Consumption + Savings.

  5. Related Concepts

  • Real Income = National Income adjusted for inflation (using GDP Deflator).

  • Per Capita Income = National Income ÷ Population.

Methods of Measuring National Income

1. Product (Value Added) Method – Sum of net value added in agriculture, manufacturing, construction, transport, banking, administration, etc.

   • Precautions: Avoid double counting, exclude stock appreciation, value self-consumption at market price.

2. Expenditure Method – Add up expenditures on final goods & services.

   • Components:

     • Consumption (C)

     • Investment (I)

     • Government expenditure (G)

     • Net Exports (X – M)

   • Precautions: Exclude second-hand goods, old shares/bonds, transfer payments.

3. Income Method – Sum of incomes earned: Wages, Rent, Interest, Profits.

   • Precautions: Exclude transfer payments, illegal income, windfall gains, sale of financial assets.

Key Concepts

• GDP (Gross Domestic Product) – Value of final goods/services produced within a country.

  • GDP at Market Price = C + I + G + (X – M).

  • GDP at Factor Cost = GDP at Market Price – Indirect Taxes + Subsidies.

  • NDP (Net Domestic Product) = GDP – Depreciation.

  • Nominal vs. Real GDP – Real GDP removes inflation effect using a deflator index.

• GNP (Gross National Product) – GDP + Net income from abroad.

  • NNP (Net National Product) = GNP – Depreciation.

  • NNP at Factor Cost = National Income.

• Domestic Income – Income generated within the country.

• Private Income – National Income + transfer payments + interest on public debt – social security & public sector surpluses.

• Personal Income – Income actually received by individuals before direct taxes.

• Disposable Income – Personal Income – Direct Taxes (spendable + savable).

• Real Income – National Income adjusted for price level changes.

• Per Capita Income – Average income = National Income ÷ Population.