Tuesday, 17 May 2011

Explain the following concepts of National Income (1) GNP or GNI (2) NNP or Define National income and discuss its various concepts

National Income :-
According to Prof. A.C Pigon " 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."

Prof. Marshall says " People of any country produce a specific quantity of different goods and services from the natural resources by the help of capital goods with in specific period i.e. usually one year and this is called national in come of the country.

National income is always indicated in monetary term. National income is the total value of those goods and services which are produced in the country during a particular year. It includes agriculture, mineral and industrial production, various services are also included.


1. Gross National Product or Gross National Income :-
CAMBELL says, " Gross national income of product is defined as the total market value of all the final goods and services produced in a year."

Two points are very important :-
1. The value of various goods and services should be measured in terms of money .
2. We should consider the value of final shape of goods. For example calculate the value of cloth instead of cotton.
The market value of the following production is included in the gross national product.
1. Total industrial production.
2. Total mineral production.
3. Total agriculture production.
4. Total services.
Economist generally use expenditure approach to calculate GNP of a country. In this approach following expenditure is included to measure the gross national product.
1. Govt. expenditure on goods and services.
2. Personal domestic private investment.
3. Personal consumption expenditure.
4. Net foreign investment.
5. Export surplus.
6. Gross domestic public investments.

Explanation :- Govt. expenditure has also two kinds, consumption expenditure and capital expenditure.So both are included in GNP. On the other hand people of the country's expenditure has also two kinds consumption and investment these two expenditure of the people are also included in the GNP. Export surplus is obtained by deducting the value of imports from the value of exports. Net foreign investment is the difference between the incoming capital for investment and out going capital for investment.

2. Net National Product (NNP) , or Net National Income (NNI) :-
Net money value of all the goods and services produced in a country during a year is called Net National Income. If we deduct the depreciation allowance from gross national product , we can get national product at current market price. Now we should explain the meaning of depreciation when we use the machines and equipments to produce the goods their value goes on decreasing due to wear and tear. At one stage these are worn out and new machinary is replaced. The fund which is set a side for covering the wear and tear of the machinary is called depreciation allowance.

Example :- Suppose one person buys a powerloom for the production of cloths for Rs. 10,000 only. He expects that this machinary will work only for years. It means that by the use of this machinary, it will loose its value eqaul to Rs. 1000 per year. He will set a side Rs. 1000 every year from the gross national income as a depreciation allowance every year. After ten year he will be able to purchase a new machinary to replace the old one.
Net National product = Gross National product - Depreciation
NNP = GNP - Depreciation

3. Gross Domestic Production (GDP) :-
Gross Domestic product is the value of goods and services produced in the country during a year minus the value of inputs.
GDP = Total value of all the goods and services produced value of inputs.

Difference in GDP and GNP :- Gross national product represent Gross Domestic product Plus (+) net factor income/payments from to abroad.
GNP = GDP + Income recived from abroad.

4. National Income or N.I :-
National income or National income at factor cost means the aggregate earnings of the four factors of production ( Land, labour , capital and organization).
So National income = Rent + Wages + Interest + Profit.

National income is the money value of all the goods and services produced in the country, during a one year. These goods and services are produced by the four factors of production.
We can also find national income by deducting the indirect taxes and adding the subsidies to NNP.
NI = NNP - Indirect taxes + Subsidies + Transfer payments + Statistical Discripancy.

1. Govt. Subsidies :- Some times govt. provides help to any particular sector of the economy and it contributes the money, such contributes the money, such contribution is called govt. subsidies suppose govt purchases the wheat from the farmer at the price of Rs. 200 per 40 kg and sells to the people at the rate of Rs. 150 so fifty ruppes is a subsidy, it will also be included in national income.

2. Indirect Taxes :- Sales tax and excise duty are indirect taxes, these are deducted to calculate the National Peroduct.

3. Transfer Payments :- Charity, Zakat, Pension and Scholorships are called transfer payments, these are also deducted to calculate NNP.

4. Statistical Discrepancy :- There are three methods of measuring the NI so if there is difference in the result of the three methods, such type of discrepency should be deducted to arrive at the same result.

5. Personal Income :- The income recieved to all individuals and households during a year in a country is called personal income. The aggregate of personal income is also called the national income. But all the income items which are included in national income are not paid to the individuals as income. For example corporate profits and corporate taxes. While there are certain transfer payments like Zakat which are not included in national income, but there are income of the individuals. So these are added up to calculate the personal income.
Personal income = National income - Corporate profits, Corporate taxes + Transfer payments.

6. Disposable personal income :- Personal income minus all taxes paid to the government is called the disposable personal income. A person can spend disposable personal income as he likes.
Disposable personal income - Personal income - personal taxes
DPI = Consumption + savings.

A person can save or consume his disposable income. So this income is usually divided into two parts, consumption ansd saving.


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