In common parlance, national income means the total value of goods and services produced annually in a country. This measure differs from NNP at market prices in that indirect taxes are deducted and subsidies are added to NNP at market prices in order to arrive at NNP at factor cost. Third, the durable goods generally keep changing hands leading to a change in their ownership and value too. They rise or fall. Government makes payments in the form of pensions, unemployment allowance, subsidies, interest on national debt, etc. However, NNP at market prices can be less than NNP at factor cost when government subsidies exceed indirect taxes. It shows that at constant prices (1993-94), GDP in 1997-98 increased by 135.9% due to inflation (or rise in prices) from Rs. This can be done by measuring GDP at constant prices which is called real GDP. When we multiply the total output produced in one year by their market prices prevalent during that year in a country, we get the Gross National Product at market prices. If we add net income received from abroad to the gross value added, this gives -us, gross national income. For instance, in order to find out the per capita income for 2001, at current prices, the national income of a country is divided by the population of the country in that year. The inter-relationship among the various concept of national income can be shown in the form of equations as under: Before publishing your articles on this site, please read the following pages: 1. Suppose 1990-91 is the base year and the national income for 1999-2000 is Rs. The imported goods are not produced within the country and hence cannot be included in national income, but the exported goods are manufactured within the country. The whole of the personal income cannot be spent on consumption, because it is the income that accrues before direct taxes have actually been paid. Many of the products pass through a number of stages before they are ultimately purchased by consumers. This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: National Income and Its Composition, 1919-1938, Volume I Volume Author/Editor: Simon Kuznets, assisted by Lillian Epstein and Elizabeth Jenks Volume Publisher: NBER are collected and assessed at market prices. from the employer and spent the same in paying for food, lodging, etc. Similarly, horse-racing is a legal activity in England and is included in national income. It may last longer or for a shorter period. Thus the difference between domestic income f and national income is the net income earned from abroad. This is nothing but net domestic product at market prices. Total rent includes the rents of land, shop, house, factory, etc. Another method of measuring national income is the value added by industries. Similarly, it is difficult to estimate the contribution made to value added by profits earned on irrigation and power projects. Out of the value of total output of each sector is deducted the value of its intermediate purchases (or primary inputs) to arrive at the value added for the entire economy. Suppose net income from abroad is Rs. However, the market value of goods and services is different from the earnings of the factors of production. These three components are excluded from national income because they do reach individuals. In reality, it is not possible to make a clear demarcation as to which service protects the people and which protects the productive process. According to Fisher, “The National dividend or income consists solely of services as received by ultimate consumers, whether from their material or from the human environments. 0000003398 00000 n Thus GNP at market prices means the gross value of final goods and services produced annually in a country plus net income from abroad. National income statistics enable us to know about the distribution of income in the country. Personal income differs from private income in that it is less than the latter because it excludes undistributed corporate profits. Personal income is derived from national income by deducting undistributed corporate profits, profit taxes, and employees’ contributions to social security schemes. By adding indirect taxes (Rs 7 crores) and depreciation (Rs 8 crores), we get gross value added or GDP which comes to Rs 75 crores. are sold as inputs by one industry to the other. 0000001254 00000 n Its calculation is shown in Tables 1, 2 and 3. Profits which are not distributed by companies and are retained by them are included in the GNP. Double counting means that a particular commodity or service like raw material or labour, etc. Completing the CAPTCHA proves you are a human and gives you temporary access to the web property. They may be final goods for one industry and intermediate for others. For this purpose the following formula is employed. This is calculated at market prices and is known as GDP at market prices. MCQ on National Income Test contains 10 questions. MCQ on National Income, which are covered in this chapter, relate to the topic, National Income. But GNP at factor cost is the income which the factors of production receive in return for their services alone. are transacted daily in the country. 75 crores (Rs. If each time, this wheat or its flour is taken into consideration, it will work out to Rs.8000, whereas, in actuality, there is only an increase of Rs.2000 in the national income. These three methods of calculating GDP yield the same result because National Product = National Income = National Expenditure. The methods are: 1. In the words of 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.”. Such activities have value and satisfy the wants of the people but they are not considered productive from the point of view of society.
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