Revision: National Income >> National Income Aggregates Economics ISC (Commerce) Class 12 CISCE

"Gross domestic product at market price is defined as the market value of the output of final goods and services produced in the domestic territory of a country during an accounting year." – Dernburg

"Gross national product may be defined as current worked out value of all goods and services produced by the economy during an income period."  - W.C. Peterson 

"Net Domestic Product at market price is the market value of final goods and services produced in the domestic territory of a country by its normal residents and non-residents during an accounting year." – Dernburg

"Net National Product at market price is the market value of the net output of final goods and services produced by an economy during an accounting year and net factor income from abroad." – Peterson

"National income is the factor income accruing to the residents of the country during a year. It is the sum of domestic factor income and net factor income from abroad." – Dernburg

"The Net Domestic Product at Factor Cost is the sum total of net values added by all the producers in the domestic territory of the country during an accounting year." – Peterson

"The sum total of factor incomes earned within the domestic territory of a country during a year."

"The Gross Domestic Product at factor cost is the sum of net value added by all the producers in the domestic territory of the country and the consumption of fixed capital during an accounting year." – Hanson

"Income from net domestic product accruing to private sector is that part of factor cost of net domestic product generated in the form of compensation of employees, operating surplus and mixed income which is accrued to the private sector." – Dernburg

• "Private income is the total of factor incomes from all sources and current transfers from the Government and rest of the world accruing to private sector." – C.S.O.
• Private income refers to the current income received from all the sources of private sector consisting of private enterprises and factor owners.
• Private income refers to the income obtained by private individuals from any source whether productive or unproductive.

"Personal income is the current income received by the persons from all sources including transfer income from government and business." -Prof. W.C. Peterson 

"Disposable income is the income remaining with individuals after deduction of all taxes levied against their income and property by the government." – Peterson

GDPMP = C + I + G + (X − M)

NNPFC = GNPFC − Depreciation

OR

NNPFC = NDPFC + NFIA

OR

NNPFC = NNPMP − Net Product Taxes − Net Production Taxes

NNPMP = GNPMP − Depreciation

OR

NNPMP = NDPMP + NFIA

GNPFC = GNPMP − Net Indirect Taxes

OR

GNPFC = GNPMP − Net Product Taxes − Net Production Taxes

GNPMP = GDPMP + NFIA

NDPFC = GDPFC − Depreciation

OR

NDPFC = NDPMP − Net Product Taxes − Net Production Taxes

NDPMP = GDPMP − Depreciation

GDPFC = GDPMP − Net Indirect Taxes (NIT)

 GNP = P × Q,
Here GNP = Gross National Product
              P = Market Price
              Q = Final goods and services produced

NDP_MP = GDP_MP - Depreciation

NNP at Market Prices = GNP at Market Price – Capital Consumption Allowances
NNP_MP = GNP_MP – CCA

NDP_FC = GDP_FC - Depreciation

GDP_FC ​= GDP_MP​ − Net Indirect Taxes

GNP at Factor Cost = GNP at Market Price - Indirect Taxes + Subsidies
Or
GNP at Factor Cost = GNP at Market Price - Net Indirect Taxes

1. Domestic Product Approach

Private Income = Factor income from NDP accruing to private sector + National debt interest + Net factor income from abroad + Current transfers from government + Other net transfers from rest of the world

2. National Income Approach (NNP at Factor Cost)

Private Income = NNP at FC − Government property & entrepreneurial income − Savings of non-departmental govt. enterprises + Interest on national debt + Net current transfers from government + Net current transfers from abroad

3. C.S.O. Approach (Alternative)

Private Income = National Income + Transfer payments + Interest on public debt − Social securities − Profits & surpluses of public undertakings

Or equivalently:

Private Income = Domestic Income + Net factor income from abroad + Net transfer payments − Government income

Personal Disposable Income = Consumption Expenditure of Households + Household Savings

Personal income = Private income - Savings of private enterprises - Corporation tax.

Disposable income = Personal income – Direct taxes (income tax and property tax) – Miscellaneous receipts of the government administrative departments (fees and fines paid by the individuals)

\[Per Capita Income=\frac{NationalIncome}{Population}\]

Real NNP = NNP for Current Year × `"Base Year Index" / "Current Year Index"`

\[\mathrm{CPI}=\frac{\text{Cost of fixed basket in current year}}{\text{Cost of same basket in base year}}\times100\]

Value of current year output at base year prices.

Real GDP = ∑ (Current year quantity × Base year price)

Using nominal GDP = GDP and real GDP = gdp:

\[\text{GDP Deflator}=\frac{\text{Nominal GDP}}{\mathrm{Real~GDP}}\]

In percentage form:

\[\text{GDP Deflator }(\%)=\frac{\text{Nominal GDP}}{\mathrm{Real~GDP}}\times100\]

Value of current year output at current year prices.

Nominal GDP = ∑ (Current year quantity × Current year price)

• National Income: Income of residents in a year.
• Domestic Product: Output within country.
• National Product: Output by residents.
  → NP = DP + NFIA
• Market Price: Includes taxes.
• Factor Cost: Excludes taxes.
  → FC = MP − Net Indirect Taxes
• Gross: Includes depreciation.
• Net: Excludes depreciation.
  → Net = Gross − Depreciation

• GNP = Market value of final goods & services + net factor income from abroad
• Includes depreciation (consumption of fixed capital)

GNP at Market Price

• GNPMP = GDPMP + Net Factor Income from Abroad

Methods of Measuring GNP

• Product Method: Value added / C + G + I + (X − M)
• Income Method: Wages + profit + mixed income + depreciation + net indirect taxes
• Expenditure Method: C + G + I + (X − M)

• Private income = income received by the private sector from all sources (factor incomes + transfer incomes).
• Derived from NNP at Factor Cost by deducting government income and adding transfer payments.
• Deduct: Government property/entrepreneurial income + savings of non-departmental government enterprises.
• Add: Interest on national debt + net current transfers from government + net current transfers from abroad.
• Three equivalent formulas — NCERT approach, NNP at FC approach, and C.S.O. approach — all yield the same result.
• Private income is a pre-tax measure; it does not equal personal income (further deductions are needed to arrive at personal income).

Domestic & National Product

• GDP (MP) = Value of final goods & services within country
• NDP (MP) = GDP (MP) − Depreciation
• NDP (FC) = NDP (MP) − Net Indirect Taxes
• NNP (FC) / National Income = NDP (FC) + Net Factor Income from Abroad

Disposable Income Aggregates

Private Income = National Income
− Govt property & entrepreneurial income

• Interest on national debt
• Transfers from Govt & Rest of World

Personal Income = Private Income
− Undistributed profits
− Corporate taxes
− Social security contributions

Personal Disposable Income = Personal Income − Personal Taxes

Economic Welfare

• Refers to material well-being from goods and services.
• Best measured by real per capita income, not total GDP.

Why GDP indicates welfare

• Higher real per capita income → more goods & services → higher living standard.

Limitations of GDP as welfare measure

• Unequal income distribution
• Wrong composition of output (more defence/capital goods, fewer consumer goods)
• Unhealthy growth (pollution, child labour, long hours)
• Regrettable expenses (pollution-related health costs)
• Ignores non-market services (housework, leisure)
• Excludes quality of life factors (health, education, environment)