National Income Aggregates

National Income Aggregates

There are no of aggregates related to NI. To understand these aggregates its important to know the following relations –

(1) Domestic product & National product :

DP is defined as the value of all final gods & services produced within the domestic territory of the country.

National Product refers to the amount of final goods & services produced by the normal residents of the country whether operating within the domestic territory or outside.

The difference between Domestic Product & National Product is known as Net factor income from abroad (NFIA). NFIA is the difference between the factor incomes incurred from rest of the world & the factor income earned by rest of the world. Thus

NP= DP + NFIA

DP= NFIA - NP

(2) National Product at market price is the value of final goods & services produced by normal residents of a country calculated at market price. National Product at factor cost expresses National Product as the sum of all factor payments i.e. wages, interest, rent & profit. The difference b/w market price & factor cost is net indirect taxes (NIT)

NIT = indirect taxes – subsidies. Thus ,

NP at factor cost = NP at market price – NIT

  Or

 NP at factor cost =NP at indirect taxes + subsidies

(3) Gross domestic product &Net domestic product 

The difference between gross & net is depreciation of fixed capital. It means loss of value of fixed capital assets during the production of process due to normal wear & tear. Gross Product includes depreciation &Net product excludes depreciation.

Thus,

GDP = NDP + depreciation

NDP = GDP + depreciation

National income aggregates :

(1) GDP at market price : The market value of all final goods & services produced during a year within the domestic territory of the country . There are 3 important observation related to this –

(a) It is a Gross Product which means it includes depreciation in it.

(b) It is a Domestic Product because it includes all goods & services which are produced in the domestic tertiary of the country. It does not matter whether the production is done by domestic or foreign companies.

(c) Value of final goods & services i.e. only the market value of final goods & services is taken into account.

(2) GNP at market price : GNP mp the monetary value of all final goods & services produced in the domestic territory of the country during the year including Net factor income abroad. Thus,

GNP mp = GOP mp + NIFA

The diff between GDP mp & GNP mp is NFIA. NFIA is the income received from abroad for rendering factor services by the normal residents of the country to rest of the world & the income paid for factor service rendered by non residents in the domestic territory of the country. The 3 components of NIFA –

(1) Net compensation of employees from abroad i.e. wages, in cash & kind both.

(2) Net property & entrepreneurial income from abroad i.e. rent, interest profit, dividend . etc

(3) Net retained earnings of resident companies Working in foreign countries.

NFIA can be both +ive -tive .When NFIA is +tive GNP >GDP .If NFIA is –ive then GNP,GDP & if NFIA is zero then GNP =GDP

(3) NDP at market price : NDP mp is market value of all final goods & services produced with in the domestic territory of the country during the year excluding depreciation

  NDPmp = GDPmp - Depreciation

  OR

  NDPmp = GNPmp – NFIA –dep

(4) NNP at market price : NNPmp is the market value of all final goods & services produced by the normal residents of the country by making allowances for depreciation.

  NNPmp =NDP mp + NFIA

  Or

  = GNPmp – dep

  Or

  = GDPmp – dep + NFIA

(5) GDP fc : It is the sum total of factors income (rent + interest + profit + wages ) generated with in the domestic territory of a country along with the consumption of fixed capital. (depreciation). Thus,

  GDP fc = GDP mp –NIT

  GDP fc = GNPmp – NFIA – NIT

(6) GNP fc : It is the sum total of earnings received by various Factors of Production in terms of wages , rent, interest etc by normal residents of a country. Thus ,

  GNPfc = GDPfc + NFIA

  Or GNPfc = GNPmp – NIT

  Or GNP fc = NNPmp- NIT+ Depreciation

  Or GNPfc = NNPfc + depreciation

(7) NDP fc : It is the sum total of factor incomes generated within the domestic territory of the country after deducting depreciation. Thus

  NDPfc =GDPfc – depreciation

  Or NDPfc =NDPmp – NIT

  Or GNPfc - depreciation –NFIA =NDPfc

  Or NNPfc – NFIA = NDPfc



It is known as domestic factors income. It includes-

(1) Compulsation of employees – It is the payment made by the producers in cash & kind both in return of labour services.

(2) Operating surplus – It is the income earned from property and entrepreneurship.

 eg : rent, interest, profit, dividend etc.

(3) Mixed income- Income earned by self employed people which is composite of labour income & property.



NNPfc as N.I. : It is the sum total of factors income earned by normal residents of country during the year. It also known as National income.

  NNPfc = GNPfc - depreciation

  NNPfc = NNPmp –NIT

  NNPfc = NDPfc + NFIA

  NNPfc = Domestic factor income +NFIA

Disposable income aggregates :

Disposable income Aggregatesare derived from National income aggregates taking into account of certain types of transfer payments for which no productive services are rendered in the current year .e.g. old age pension,unemployment allowances etc.

(not included in NI as they do not contribute in current yr.)

Transfer payments are of two types-

1- Current transfer is one which is made out of the current income of the payer &adds to e current income of the receiver.

2- Capital Transfer is one which is paid out of wealth of the payer & adds to the wealth of the receiver. In onomics we re only concerned with the current transfer

3- Disposable income is income inclusive of all current transfers.Thus, DI = Income + net current transfers

Net current transfer can be both + ve & - ve

If net current transfer are + ve disposable income will be higher than the income. On the other hand if net current transfer are – ve disposable income will be lower than the income.

Personal income

It is actual income received by persons from all persons in the form of factor income and current transfer payment during the year.

PI = private income – undistributed profit – corporate profit tax – retained earnings of foreign companies.

It is useful in finding the purchasing power that is actually there in the hands of the people PI is known as Pre-tax income also.

Personal Disposable Income (PDI).

PDI is That part of PI which is a available to the individuals to be used the way they like.

PDI = PI – Personal taxes – misc.Receipts of the govt admn. Department (fines, fec ) . Disposable income is always less than PI because it is the income which we get after deducting all types of personal taxes. Thus

PDI = consumption + saving.

Some other aggregates of NI are :

(1) Per Capita income – PCI is the aggregate income of thethe normal resident of the country in a particular year.Thus,Per capita income = (total national income/ Total population)

Per capita can be measured at current price as well as at constant prices. When it is measured at constant prices it is called Real per capita income which is very good indicator of economic growth formula to measure PCI is :

PCI = national income at constant prices / Total population

NI at current prices : When NI is measured at prevailing mp is known as NI at current prices. It is called monitory or nominal income also.

NI at constant price-

NI when measured at some base year price is called NI at constant price a real national income. Thus , NI at constant price = NI at constant price x100 / Price index of current yr

Advantages of real national income : 

(1) It reflects the real change in the volume of production of goods &services, hence it is a true indicator of economic progress of the country.

(2) It enables as to make year vise comparison of changesin the growth of output of goods & services.

(3) It is often used in making international comparisons.




Questions -  

q-1 Explain any 4 aggregates of NI.

q-2 Diff. b/w GDPmp and GNPmp.

q-3 Explain the concept of GDP.

q-4 What do you mean by NFIA? Give its components.

q-5 What is domestic factor input. Explain the components of input.

q-6 Explain the disposable income aggregates of private sector.

q-7 Show the relationship b/w NDPfc & NNPfc .

q-8 Diff. b/w per capita income at constant prices & per capita income at constant prices.

q-9 Diff. NI at crise prices & NI at constant prices.

q-10 What do you mean by real national income give advantage of it.

Conversions:

(i) GDP mp = NNP fc + ……………… - …………….. +…………..

(ii) GDP fc = GDP mp…………….

(iii) NNP mp =GDP fc………….

(iv) PI = Pvt. Income …………..

(v) Private income = NNP fc……………

(vi) PDI = PI ………………

(vii) NIT = indirect taxes …………….

(viii) NFIA =GNP ………………..

(ix) Depreciation = GDP - …………..

Answers

(i) GDP mp = NNPfc + depreciation – NFIA +NIT

(ii) GDP fc= GDP mp - NIT

(iii) NNPmp =GDP fc- depreciation +NFIA

(iv) PI = Private income – undistributed profit –corporate profit tax – retained earning of foreign companies

(v) Private income = NNPfc.