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ICS FA ICom Notes Class XI Principles of Economics National Income Definition and Concept of National Income 

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Definition of National Income

The term national income has been differently defined by different authors. A very simple definition of national income can be given as :

“The National Income for any period consists of the money value of the goods and services becoming available for consumption during the period.”

National income in the words of Pigou is:

“That part of objective income of the community including income derived from abroad which can be measured in money.”

It is the aggregate factor of income i.e. earnings of labour and property which arises from the current production of goods and services by the nation’s economy.

Concepts of National Income

The various concepts of national income are given below:

1. Gross National Product (G.N.P)

Gross national product is defined as

“ The total market value of all final goods and services produced in a year”

Two things are important with respect to this definition:

Firstly, it measures the market value of amount output. Therefore it is a monetary measure.

Secondly, for calculating national product accurately all goods and services produced during a year must be counted only once.

G.N.P generally includes the following.

(i) Agricultural Product

In agricultural product wheat, rice, cotton, tobacco, jute all types of vegetables pulses, fruits etc are included.

(ii) Industrial Product

By industrial products we mean all types of machineries, means of transportation, furniture, electronic items and other electric equipments.

(iii) Mineral Product

It includes coal, iron, petroleum, natural gas, salts and other materials like gold silver etc.

Since, G.N.P deals in market prices these market prices may be obtained by adding up:

• What private person spends on consumption?
• What businessman spends on replacement, renewal or making new investment?
• What the rest of the world spends on the out put of national economy.
• What the government spends on the purchase of goods and services.

Equalization of G.N.P can be written as:

G.N.P = CONSUMER GOODS + CAPITAL GOODS + DEPRECIATION + INDIRECT TAXES

2. Net National Product (N.N.P)

During a year the production of gross nation al product some capital goods are consumed i.e. the plants, machinery, and other equipments are brought in use. The se capital goods due to utilization in the production expire its value, commodity known as depreciation allowances are deducted from the gross national product (G.N.P) we get the net national product (N.N.P). Its equation can be given as:

N.N.P = G.N.P – DEPRECIATION

Thus the definition of the N.N.P can be properly written as, “The market value of final goods and services after deducting the depreciation charges is called net national product.

3. Personal Income (P.I)

The some of all incomes actually received by all individuals or households during a given financial year is called personal income. Personal income is different from national income for the simple reason that some incomes such as social security contribution cooperate income taxes and distributed profits which are included in national income are not actually received by the house holds. The equation of personal income thus can be written as:

PERSONAL INCOME (P.I)= NATIONAL INCOME – SOCIAL SECURITY CONTRIBUTION – COOPERATE INCOME TAX – UNDISTRIBUTED PROFITS

4. Disposable Income (D.I)

After payment of personal taxes like income tax, property tax etc. What party of personal income is left for others consumption is called disposable personal income. Its equation is:

DISPOSIBALE INCOME = PERSONAL INCOME – PERSONAL TAXES