National income may be defined as the net output of commodities and services flowing during the year from

the countrys productive system in the hands of the ultimate consumers

It is an indicator of the performance and economic activity of a country

Gross National Product(GNP) Net National Product Net National Income at factor cost Gross Domestic Product Net Domestic Product Personal income Disposable income Real income

Gross national product may be defined as a total measure of goods and services being produced in country and outside by its nationals during a year, including net factor income from abroad It therefore, includes 4 types of final goods and services Consumers goods and services Private investment in Capital Goods, residential constructions, inventories of finished and unfinished goods Goods and services produced by Govt Net Exports (Net income from abroad)

GNP is measured at current as well as constant prices. When GNP considers the current market prices of all goods and services produced, it is taken at current prices. However, due to unreasonable fall or rise in prices, GNP figure might seem to be low or high. To eliminate this effect GNP is measured at base year prices and is called GNP at constant price

Exclusions from GNP include intermediate goods which are to enter the production process further, sale and purchase of old goods, sale and purchase of shares and bonds of companies, income from illegal activities and contributions towards social security payments

Gross domestic product may be defined as a total measure of final goods and services being produced within the domestic territory of the country in one accounting year. GDP = P * Q where P is the market price and Q is the final output of goods and services Not included in GDP Income from illegal activities Black money Transfer payments Income from monetary transactions like shares, debentures etc Value of second hand goods Self consumption services

Net national product at market price measures the value of final goods and services produced within a country and abroad (using its resources) in an accounting year after worn out capital has been replaced. Some capital goods are used up in the production process and are subject to wear and tear, destruction etc. The cost to replace them is called capital consumption. Therefore, NNP (Mkt Price) = (Mkt value of final goods and services in one accounting year) + (Net factor income from abroad) (depreciation)

NDP at market price = (Value of final goods and services produced in one accounting year) ( Depriciation or capital consumption allowance)

GDP AT FACTOR COST

The GDP at factor cost is a sum of wages, rent , interest and profit earned by the normal residents of a country with a year. GDP at factor cost = Wages + Rent + Interest + Profit

GDP at mkt price always includes indirect taxes which is levied by the Govt

These indirect taxes (ex sales tax) raise the price of goods and services in the market which are available for consumption. However these prices do not reflect the true cost of the production. The factors of production receive payments for their services alone. Therefore to arrive at GDP at factor cost, we must deduct the Indirect Taxes from GDP at Mkt Price.
Sometimes , the cost of production to a producer is often higher than the normal price of similar commodities in the market

For example suppose the market price of rice is Rs 25 /Kg but it costs producers in certain areas Rs 26.50 / Kg. The Govt might give a subsidy of Rs1.5 in order to meet their cost of production This subsidy is added to the price of goods and services produced before it enters the market. So subsidies are added to GDP at mkt price GDP at Factor Cost = GDP at mkt prices Indirect Taxes + Subsidies

NNP at factor cost = NNP at Mkt price Indirect taxes + subsidies = GNP at Mkt Price depreciation Indirect Taxes + Subsidies

= National Income

Gross Domestic Product at Market Price (GDPMP ) = Market value of final goods and services produced within the domestic territory of a country in an accounting year

Gross National Product at Market Price (GNPMP) = (GDPMP) + Net Factor Income from Abroad.

Net National Product at Market Price (NNPMP) = (GNPMP) - depreciation.

Net Domestic Product at Market Price (NDPMP) = (NNPMP) NFYA.

Net Domestic Product at Factor Costs (NDPFC) = (NDPMP) Indirect taxes + Subsidies.

Gross domestic Product at Factor Cost (GDPFC) = (NDPFC) + Depreciation

Gross National Product at National Cost (GNPFC) = (GDPFC) + Net Factor Income from Abroad.

Net National Product at Factor Cost (NNPFC) or National Income = (GNPFC) - Depreciation.

Private Income is income obtained by private individuals from any source, productive or otherwise and the retained income of corporations. To calculate the same, transfer payments like pensions, unemployment benefits, sickness allowance, remittances from abroad , windfall gains etc are added to National Income.
Income from Govt Departments, Surpluses from Govt Undertakings, employees contribution to social security schemes are deducted from National Income Private Income = National income (NNP at factor cost) + Transfer Payments Social Security payments profits of public sector undertakings

Private income is the total income received by individuals from all Sources before direct taxes in one year Personal Income = Private Income undistributed corporate profits profit taxes Disposable income = Personal Income Direct taxes

Or
Disposable Income = Consumption expenditure + Savings

Product Method or Value Added Methodmeasures NY by estimating the contribution of each producing enterprise to production in the domestic territory of the country in an accounting year. Value added = value of output Intermediate consumption Value of output = sum total of sales during the year and change in stock during the year. Intermediate consumption- value of non factor inputs.

 Income

Method

NNPFC = NDPFC + Net Factor Income From Abroad

Compensation of employees + Operating surplus + Mixed Income

Net Factor Income from Abroad

Compensation of employees + Operating surplus + Mixed Income + Net factor income from Abroad

Operating surplus = Rent + Interest+ Profit

NDPFC

NNPFC

Expenditure method
Private Final consumption expenditure + Govt. Final Consumption Expenditure + Gross Domestic Fixed capital Formation + Change in Stock + Net Exports (Exports- Imports)
Gross Domestic Product at Market Price Depreciation

Net Domestic Product at Market Price

Net Indirect Taxes

Net Domestic Product at Factor Cost

Net Factor Income from Abroad

National Income (NNPFC)

To measure the size of the economy and level of countrys economic performance. To trace the trend or speed of the economic growth in relation to previous year(s) as well as to other countries. To know the structure and composition of the national income in terms of various sectors and the periodical variations in them. To make projection about the future development trend of the economy. To help government formulate suitable development plans and policies to increase growth rates.

To fix various development targets for different sectors of the economy on the basis of the earlier performance.
To

help business firms in forecasting future demand for their products make international comparison of peoples living standards

To

 Lack

of statistical required information. Double counting problem. Unpaid services (Housewife, sewing, house painting by others etc..) Foreign Firm income. Production for Self Consumption. Second hand sale.