Business, Legal & Accounting Glossary
National income is defined by the economist J. M. Keynes as “the money value of all goods and services produced in a country during a year.”
Macroeconomics, Tenth Edition, defines national income as, “Total payments to factors of production; net national product minus indirect taxes.”
The different sectors of the economy produce a wide range of goods and products each year. All these products taken together indicate the gross production of a country in a particular year. The value of each of these goods and services when calculated on monetary terms results in the national income.
The national income of a country is an index of its economic development. It helps to study the growth of the economy over a certain period of time. It gives an idea about the contribution of the different sectors and the extent to which annual plans and policies are implemented.
Some of the important concepts such as net national product and per capita income are related to national income.
National income is calculated by three methods. These include the expenditure method, the production method, and the income method. In India, the Central Statistical Organization calculates the national income.
Under the expenditure method, national income is calculated by summing up expenditures incurred for different types of goods and services. Both private individuals and government incur expenditure for production and consumption of goods and services.
As per the expenditure method, national income is the sum total of government expenditure and individual expenditure.
The production method of national income calculation gives an idea about the total production of goods and services in an economy during a particular financial year. Under this method, economic activities of a country are divided into three major sectors: Primary, secondary, and tertiary. The production of goods and services of different units under each of these sectors is then calculated separately. National income is the sum total of production of all these three sectors.
Under the income method, national income is calculated as the sum total of factor income obtained by different factors of production. Land, labour, capital, and organization are considered to be the four major factors of production. As per the income method, national income is obtained by horizontal summation of rewards received by these four factors of production that include rent for land, wages given to labours, interest on capital, and profit of organizations.
GNP, or gross national product, is described as the sum total of the value of all final commodities and services produced in an economy during one financial year, plus net factor income from abroad.
Here, net factor income = income earned by people of home country residing abroad – income earned by foreigners residing in the home country
GDP or gross domestic product is the sum total of all final commodities and services produced in a year within the domestic boundary of a country.
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This glossary post was last updated: 2nd April, 2020 | 0 Views.