Definitions [2]
Classical Definitions: National Income
- "The labour and capital of a country acting on its natural resources produce annually a certain net aggregate of commodities, material and immaterial, including services of all kinds. This is the true net annual income or revenue of the country or national dividend." - Marshall
- "National income is that part of the objective income of the community, including of course income derived from abroad, which can be measured in money." - Pigou
- "The national dividend or income consists solely of services as received by ultimate consumers, whether from their material or from their human environments. 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 during this year by these things are income." - Fisher
Modern Definitions: National Income
- "National income estimate measures the value of commodities and services turned out during a given period, counted without duplication." - N.I.C. of India
- "National income is the sum of wages, rent, interest and profit or the sum of all goods and services produced by the economy during one income period." - Shapiro
Formulae [1]
Formula: National Income by Income Method
National Income (NI) using this income method is expressed as:
NI = R + W + I + P + MI + (X − M) + (R − P)
Where:
- R: Rent (including imputed rent of owner-occupied houses and income from government property)
- W: Wages and salaries (compensation of employees)
- I: Interest
- P: Profits (including distributed, undistributed, and corporate tax)
- MI: Mixed income of self-employed (where labour and capital income cannot be separated)
- X−M: Net exports (exports minus imports of goods and services)
- R−P: Net receipts from abroad (net income from abroad, such as factor income received from the rest of the world minus factor income paid abroad)
In words, national income is the sum of all domestic factor incomes plus net exports and net factor receipts from abroad.
Key Points
Key Points: Importance of National Income
- Economy: Shows total income, output, and trade.
- Policies: Basis for planning jobs, industry, and farming.
- Planning: Helps in making economic plans.
- Research: Used for economic studies.
- Living Standard: Compares wellbeing across countries/time.
- Income Distribution: Shows income inequality.
