A.4] National Income and Aggregates

A.4.1] Definition

National Income refers to the total value of all goods and services produced within a country during a specific period, usually a year.
It is a measure of a country’s economic performance and standard of living.
Key Terms:
- GDP (Gross Domestic Product): Total market value of all final goods and services produced within a country in a given period.
- GNP (Gross National Product): Total market value of all final goods and services produced by the residents of a country, regardless of where they are produced.
- NDP (Net Domestic Product): GDP minus depreciation.
- NMP (Net National Product): GNP minus depreciation.
- NNP at Factor Cost: NNP at market price minus indirect taxes plus subsidies.
- Personal Income (PI): Income received by individuals from all sources.
- Disposable Income (DI): Personal Income minus personal taxes.

Sum of all incomes earned by factors of production.
Formula:
$$ \text{National Income} = \text{Wages} + \text{Rent} + \text{Interest} + \text{Profits} $$
Key Points:
- Includes all factor incomes.
- Excludes transfer payments.
- Used in India for calculating Net National Product at Factor Cost.

Sum of all expenditures on final goods and services.
Formula:
$$ \text{GDP} = C + I + G + (X - M) $$
- C: Consumption expenditure
- I: Investment expenditure
- G: Government expenditure
- X: Exports
- M: Imports
Key Points:
- Measures total spending in the economy.
- Used in most countries for GDP calculation.
- Excludes intermediate goods and services.

Sum of the value added at each stage of production.
Formula:
$$ \text{GDP} = \sum (\text{Value of Output} - \text{Intermediate Consumption}) $$
Key Points:
- Avoids double-counting.
- Used in India for calculating GDP.
- Focuses on the value added by each firm.

National Income is a flow concept.
GDP is the most commonly used measure of economic activity.
NDP = GDP – Depreciation
NMP = NNP – Depreciation
NNP at Factor Cost = NNP at Market Price – Indirect Taxes + Subsidies
Personal Income = National Income – Corporate Taxes – Social Security Contributions + Transfer Payments
Disposable Income = Personal Income – Personal Taxes

$ \text{GDP} = C + I + G + (X - M) $
$ \text{NDP} = \text{GDP} - \text{Depreciation} $
$ \text{NMP} = \text{NNP} - \text{Depreciation} $
$ \text{NNP at Factor Cost} = \text{NNP at Market Price} - \text{Indirect Taxes} + \text{Subsidies} $
$ \text{PI} = \text{NNP at Factor Cost} - \text{Corporate Taxes} - \text{Social Security Contributions} + \text{Transfer Payments} $
$ \text{DI} = \text{PI} - \text{Personal Taxes} $

National Income is a flow variable.
GDP is a measure of economic activity.
India’s national income data is compiled by the Central Statistics Office (CSO).
National Income is used to assess the standard of living.
GDP at factor cost is the same as NNP at factor cost.
GDP at market price is the same as NNP at market price.
India’s GDP is calculated using the production method.
Depreciation is also known as capital consumption allowance.
Indirect taxes are included in GDP at market price.
Subsidies are subtracted from GDP at market price to get NNP at factor cost.