National Income and aggregates
A.4] National Income and Aggregates
A.4.1] Definition
- National Income refers to the total value of all goods and services produced within a country during a specific period, usually a year.
- It is a measure of a country’s economic performance and standard of living.
- Key Terms:
- GDP (Gross Domestic Product): Total market value of all final goods and services produced within a country in a given period.
- GNP (Gross National Product): Total market value of all final goods and services produced by the residents of a country, regardless of where they are produced.
- NDP (Net Domestic Product): GDP minus depreciation.
- NMP (Net National Product): GNP minus depreciation.
- NNP at Factor Cost: NNP at market price minus indirect taxes plus subsidies.
- Personal Income (PI): Income received by individuals from all sources.
- Disposable Income (DI): Personal Income minus personal taxes.
A.4.2] Calculation Methods
1. Income Method
- Sum of all incomes earned by factors of production.
- Formula:
$$
\text{National Income} = \text{Wages} + \text{Rent} + \text{Interest} + \text{Profits}
$$
- Key Points:
- Includes all factor incomes.
- Excludes transfer payments.
- Used in India for calculating Net National Product at Factor Cost.
2. Expenditure Method
- Sum of all expenditures on final goods and services.
- Formula:
$$
\text{GDP} = C + I + G + (X - M)
$$
- C: Consumption expenditure
- I: Investment expenditure
- G: Government expenditure
- X: Exports
- M: Imports
- Key Points:
- Measures total spending in the economy.
- Used in most countries for GDP calculation.
- Excludes intermediate goods and services.
3. Production (Value-Added) Method
- Sum of the value added at each stage of production.
- Formula:
$$
\text{GDP} = \sum (\text{Value of Output} - \text{Intermediate Consumption})
$$
- Key Points:
- Avoids double-counting.
- Used in India for calculating GDP.
- Focuses on the value added by each firm.
4. Comparison of GDP and GNP
| Parameter |
GDP |
GNP |
| Scope |
Domestic production |
Resident production |
| Includes |
All domestic factors |
All resident factors |
| Excludes |
Foreign factors |
Foreign residents |
| Used in India |
Yes (for GDP) |
Not commonly used |
5. Important Dates and Terms
- 1951: India started compiling national income data.
- 1991: India shifted from NNP at factor cost to GDP at market price.
- 2010: India adopted the System of National Accounts (SNA) 1993.
- 2015: India began using the 2010 SNA for national income estimates.
6. Key Facts for Competitive Exams (SSC, RRB)
- National Income is a flow concept.
- GDP is the most commonly used measure of economic activity.
- NDP = GDP – Depreciation
- NMP = NNP – Depreciation
- NNP at Factor Cost = NNP at Market Price – Indirect Taxes + Subsidies
- Personal Income = National Income – Corporate Taxes – Social Security Contributions + Transfer Payments
- Disposable Income = Personal Income – Personal Taxes
7. Examples
- GDP of India in 2022-23: ₹258.3 trillion
- GDP per capita (2022): ₹2.18 lakh
- India’s GDP growth rate (2022-23): 7.2%
- GDP growth rate (2023-24): 6.8%
8. Differences Between GDP and GNP
| Aspect |
GDP |
GNP |
| Focus |
Domestic territory |
Resident population |
| Inclusion of Income |
Domestic factors |
Resident factors |
| Exclusion of Income |
Foreign factors |
Foreign residents |
| Use in India |
Primary measure |
Less commonly used |
9. Important Concepts for Quick Revision
- Factor Income: Wages, rent, interest, profits.
- Transfer Payments: Social security, unemployment benefits, etc.
- Indirect Taxes: Excise, sales tax, customs duties.
- Subsidies: Government financial assistance.
- Depreciation: Capital consumption allowance.
- Value Added: Output – Intermediate Consumption.
- $ \text{GDP} = C + I + G + (X - M) $
- $ \text{NDP} = \text{GDP} - \text{Depreciation} $
- $ \text{NMP} = \text{NNP} - \text{Depreciation} $
- $ \text{NNP at Factor Cost} = \text{NNP at Market Price} - \text{Indirect Taxes} + \text{Subsidies} $
- $ \text{PI} = \text{NNP at Factor Cost} - \text{Corporate Taxes} - \text{Social Security Contributions} + \text{Transfer Payments} $
- $ \text{DI} = \text{PI} - \text{Personal Taxes} $
11. Facts Often Asked in SSC, RRB
- National Income is a flow variable.
- GDP is a measure of economic activity.
- India’s national income data is compiled by the Central Statistics Office (CSO).
- National Income is used to assess the standard of living.
- GDP at factor cost is the same as NNP at factor cost.
- GDP at market price is the same as NNP at market price.
- India’s GDP is calculated using the production method.
- Depreciation is also known as capital consumption allowance.
- Indirect taxes are included in GDP at market price.
- Subsidies are subtracted from GDP at market price to get NNP at factor cost.
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