National income is the monetary value of all final goods and
services produce in a country with in a year. It refers to the total money
income of the country in a particular year. National income is the aggregate of
income received by all the individuals and sectors of the economy during a
given period of time specially one year. Moreover, national income is the
summation of income received by all factor of production in the form of rent,
wage, interest and profit in a particular year.
NI = ΣY = Y1+Y2+…………………+Yn
Where
NI = National
Income
Y1 =
Income received by the 1st individual or sector of the economy
Y2 =
Income received by 2nd individual or sector of the economy.
Yn =
Income received by nth individual or sector of the economy.
Meaning and Definition of National Income
Marshall's Definition
According to Marshall,
"The labour and capital of a country acting upon its natural resources
produce annually a certain net aggregate of commodities, material and
immaterial including services of all kinds. This is the net annual income or
revenue of a country or the national dividend."
Pigou's Definition
According to Pigou,
"National income is that part of objective income of the community,
including of course income derived from abroad which can be measured in
money."
Fisher's Definition
According to Fisher, "The national dividend or income consists
solely of services as received by ultimate consumers, whether from their
material or from their human environments. Thus, a piano or an overcoat made
for me this year is not a part of this year's income, but an addition to
capital. Only the services rendered to me during this year by these things are
income."
Modern Definition of National Income
According to Simon Kuznets,
“National income is the net output of commodities and services flowing during
the year from the country’s productive system to the hands of ultimate
consumers.”
United Nations defined NI in three aspects:
(1) Net National Product
(2) Sum of Distributive
shares
(3) Net national expenditure
World Bank, “GNP measures
the total domestic and foreign value added claimed by residents. It comprises
GDP plus net income from abroad which is the income received by residents for
factor services less similar payments made to non-residents who contributed in
the production of goods and services to the domestic economy.”
Various Concept of National Income
Gross Domestic Product (GDP at MP)
Gross Domestic product is the money value of all final goods and
services produced within the domestic territory of a country during a year. In
other words, it is product of market price and final value of goods and
services.
GDPMP =
Pi Qi
Where,
Pi =
price of ith commodity
Qi =
quantity of ith commodity
MP = market price
In expenditure approach,
GDP = C + I + G +
(X – M)
Where,
C = private
household consumption expenditure
I = private
domestic investment expenditure
G = Government
expenditure
X – M = Net export
(X = export, M = import)
Features of GDP
· GDP is money value of total goods
and services produced within the country.
· GDP includes the value of only
final goods and services produced during a period of time, basically a year.
· The value of final goods and
services is calculated at the current market price. That is why GDP is known as
GDP at market price.
· GDP includes only those goods
and services which have market value and which are brought in the market for
sales.
· GDP does not include transfer
payment like pension, unemployment allowance. It is because they do not have
any contribution in production process.
· GDP does not include capital
gains.
Gross National Product at Market Price (GDP at MP)
Gross national product at market price is the money value of all
final goods and services produced in a country during a year plus net factor
income from abroad.
GNP = GDP + NFIA
Where,
NFIA = Net Factor
Income from Abroad
NFIA = Re – Fe
Where,
Re = earning of
resident people from foreign country
Fe = earning of
foreign people in domestic country
\ GNP =
GDP + NFIA
=
C + I + G + (X – M) + (Re – Fe)
Net National Product (NNP)
At market price is gross national product at market price less
depreciation.
NNP = GNP – Depreciation
=
GDP + NFI A – Depreciation
=
C + I + G + (X – M) – (Re – Fe) – Depreciation
Personal Income (PI)
Personal income can be defined as the sum of all kinds of income
received by the individuals from all sources of incomes. It is all possible
income before direct taxes. Personal income includes wages and salaries, fees
and commission, bonus, fringe, benefits, dividends, interest earning and
earning from self employment. It also includes transfer income like pension,
family allowances, unemployment allowances, sickness allowances, old age
benefits and social security benefits. Personal income also includes the
incomes earned from illegal means, e.g., brige, smuggling, cheating, theft,
etc.
Disposable Income (DI)
Disposable income is that
part of the personal income which the households can spend. It refers to
purchasing power of the household. It is the part of income after deduction of
tax.
Disposable income (Yd) =
Personal income (Y) – Direct tax (T)
\ Yd = Y
– T
Disposable income Yd = Consumption
expenditure – Saving
\ Yd = C
+ S
Private Income
Broadly, all personal income is private income. However, the private
income is the difference between net domestic product and public income.
Total private
income = Net domestic product – Public income
Per Capital Income PCI
It is the ratio between total money income of nation and total
number of population.
PCI =
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