National Income

National Income

In the words of Prof. Irwing Fisher, “National dividend or income consists solely of services as received by the ultimate consumer whether from their material or from their environment. 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 this year by those things are income.”

Fisher’s definition about National Income is based on 

• Quality of assets
• Addition of capital
• Realization of services
• Income measured in terms of services received

Thus we can define National Income as “National Income or product is the aggregate money value of all goods and services produced by a normal resident of a country in an account year including net factor income from abroad.”

Concepts of NI (National Income)

• GDP_{at MP} and GNP_{at MP}  
  • In GDP_{at MP} contributions of 3 sectors are considered. In GNP_{at MP}  shows the addition of fourth sector
  • GDP_{at MP} shows contribution inside the economy. GNP_{at MP} shows inside and outside interrelation
  • If x > M, GNP > GDP

If x < M, GNP < GDP

If x = M, GNP = GDP

• GDP_{at MP} and GNP
  • GDP or GNP shows aggregate value of any income or output
• NDP_{at MP} and NNP_{at MP}
  • NDP or NNP shows net value in terms of income or output

Q. What is the National Income? What is the importance of National Income?

Ans. The concept of National Income occupies an important role and place in economics decisions for a nation. In the words of Prof. Alfred Marshall in his book ‘The Principles of Economics’, “The labor and capital of a country acting upon its natural resources produced annually a certain net aggregate of commodities, material and immaterial including services of all kinds.”

In the words of Prof. AC Pigou, “The National dividend is that part of objective income of the community including of course income derived from abroad which can be measured in terms of money.”

DIvidend – Realization of income with the combination of various factors of production

Types of NI determination

NI = Σyi = y1 + y2 + … yn

• Income Method : Under income method, contribution of every sector is represented in the domestic product column GDI (Gross Domestic Income). Alternately the comparison of total inflow and outflow, the balancing figure is net income from abroad. The next step under determination of national income shows Gross National Income (GNI) and after allowed deduction it turns into Net National Income (NNI).
• Expenditure Method : The determination of national income through

GDP_{at MP} + NFEA = GNE_atMP

GNE_{at MP} –  Dep = NNE_{at MP}

NNE_{at MP} – NIE = NE (National Expenditure) = NNE_{at FC}

• Output Method : The contribution made by various sectors in terms of output shows Gross Domestic Output. This is further processed and Gross National Output is determined due to addition of net factor output from abroad.

(NFDA) Inflow > Outflow

And after permissible deduction provide net national output which after adjustment provides Net National Output at factor cost