2. Basic Concepts of National Income & Related Aggregates
National Income is an important concept of macroeconomics. There are various
aggregates or variants of national income. Each aggregate has a specific
meaning, method of measurement, and use.
The various aggregates of national income are :
a) Gross Domestic Product at Market Price (GDPMP)
b) Gross Domestic Product at Factor Cost (GDPFC)
c) Net Domestic Product at Market Price (NDPMP)
d) Net Domestic Product at Factor Cost (NDPFC or Domestic Income)
e) Gross National Product at Market Price (GNPMP)
f) Gross National Product at Factor Cost (GNPFC)
g) Net National Product at Market Price (NNPMP)
h) Net National Product at Factor Cost (NNPFC or National Income)
3. It refers to the Gross Market Value of all final Goods and Services produced within the
domestic territory of a country during one year.
Gross Domestic Product at Market Price (GDPMP)
It refers to the gross money value of all the final goods and services produced within the
domestic territory of a country during one year.
GDPFC = GDPMP - Net Indirect Taxes
Gross Domestic Product at Factor Cost (GDPFC)
It refers to the net market value of all the final goods and services produced within the
domestic territory of a country during one year.
NDPMP = GDPMP - Depreciation
Net Domestic Product at Market Price (NDPMP)
It refers to the net money value of all the final goods and services produced within the
domestic territory of a country during a period of one year.
NDPFC = GDPMP - Net Indirect Taxes - Deprecation
Net Domestic Product at Factor Cost (NDPFC)
Important Terms
4. It refers to the gross market value of all the final goods and services produced by the
normal residents of a country for one year.
GNPMP= GDPMP + Net Factor Income from Abroad
Gross National Product at Market Price (GNPMP)
It refers to the gross money value of all the final goods and services produced by the
normal resident of a country during one year.
GNPFC= GNPMP - Net Indirect Taxes
Gross National Product at Factor Cost (GNPFC)
It refers to the net market value of all the final goods and services produced by the
normal resident of a country during one year.
NNPMP = GNPMP - Depreciation
Net National Product at Market Price (NNPMP)
It refer to the net money value of all the final goods and services produced by the
normal residents of a country during one year.
NNPFC = GNPMP- Net Indirect Taxes - Depreciation
Net National Product at Factor Cost (NNPFC)
5. Basis Domestic income National income
Nature
It is a territory concept as
it includes the value of
final goods and services
produced within domestic
territory of a country.
It is a national concept
as it includes the value
of final goods and
services produced in the
entire world.
Category
of
producers
It considers all producers
within the domestic
territory of the country.
It considered all
producers who are
normal residents of the
country.
NFIA It does not include NFIA. It includes NFIA.
Differentiate between Domestic Income (NDPFC)
& National Income (NNPFC) :
6. Private Income refers to the income which accrues to the
private sector from all sources within and outside the country.
It consists of two kinds of income :
Income earned within the domestic territory is
known as income from domestic products
accruing to the private sector.
Income earned outside the domestic territory is
known as net factor income from abroad.
1) Factor income (earned income) :
Income received within the domestic territory. It
includes national debt interest and current
transfers from the government.
Income received from outside the domestic
territory is known as net current transfers from
the rest of the world.
2) Transfer income (unearned income) :
Private Income
7. Transfer Income under Private Income :
Interest in the
national debt :
Sometimes, the government borrowed funds from the public
in order to meet its rising expenditure.
Such debts are generally used by the government for
consumption purposes.
Hence, interest paid on such debts is treated as a transfer
income for private enterprises.
Current transfers
from the
government :
It includes all Transfer receipts from the government in the
form of scholarships, unemployment allowances, subsidies,
etc.
Such transfers are always positive as they are one-sided, i.e.
They flow from the government to the private sector.
Net current
transfers from
the rest of the
world :
It refers to net gifts and remittances received from abroad. It
is positive when transfers received from abroad are more than
transfers paid abroad.
However, if transfers paid abroad are more than transfers
received, then it is negative.
8. Basis Private Income National Income
Factor /
Transfer
Income
It includes factor
income as well as
transfer income.
It includes factor
income only.
Public
Sector
Income
It does not include
income from the
public sector.
It includes the
income of the
public sector.
The differences between Private Income and National
Income are :
9. Basis Private Income
Income from domestic products
accrues to the private sector
Factor /
Transfer
Income
It includes factor
income as well
as transfer
income.
It includes factor income
only.
Concept
It is a national
concept as it
includes NFIA.
It is a domestic concept as
it excludes NFIA.
The differences between private income and income from
domestic products accruing to the private sector are :
10. Personal income is the total of all the income that is
received by households from all the sources.
Personal income does not include ‘corporate tax’ and
‘retained earning’.
Personal Income = Private Income - Corporate Tax - Retained Earnings
Personal Income
11. Private
Income =
Received
Earned
Includes
Income from
Domestic
Product
Accrues to
Private
Sector
Net Factor
Income from
Abroad
(NFIA)
+ +
+
Private Income
Factor Income Transfer Income
Domestic
Territory
Rest of the
World (ROW)
Within From Within From
Domestic
Territory
Rest of the
World (ROW)
Interest on
National
Debt +
Current
Transfers
from
Government
Net Current
Transfer
from ROW
12. Basis Personal Income Private Income
Meaning
It refers to income actually
received by households
from all sources.
It refers to income which
accrues to the private sector
from all sources.
Concept
It is a narrow concept as it
is a part of private income.
It is a broader concept as it
is a part of personal income.
Formula
Personal income = Private
Income - Corporate Tax -
Retained Earnings.
Private income = Personal
Income + Corporate Tax +
Retained Earnings.
The differences between Personal Income and
Private Income are :
13. Personal
Disposable
Income
Personal disposable income (PDY)
refers to that part of personal income
which is available at the disposal of
households.
It is that part of personal income
which is left with the household after
making payments of taxes, fees, and
other miscellaneous receipts of the
government.
Personal Disposable Income = Personal
Income - Personal Taxes -
Miscellaneous Receipt of Government.
14. The alternative
method to
calculate PDY
Households can use their
disposable income by either
spending on the consumption
of goods and services or
saving for the future.
So, PDY can also be
calculated as :
Personal Disposable Income =
Personal Consumption
Expenditure + Personal Savings
15. National
Disposable
Income (Net
and Gross) :
National disposable income
refers to the income which is
available to the whole
country for disposal.
It includes both factor
income and transfer income.
It is also known as 'Net
National Disposable
Income'.
16. National
Disposable
Income (NDY)
includes :
NDY includes 'Net Indirect taxes' as
it is the transfer income of the
government and is free to use, the
way it likes.
NDY also includes 'net current
transfer from ROW' as it is the
transfer income of the government
received from abroad.
Net Disposable Income = National
Consumption Expenditure +
National Savings.
17. Gross National
Disposable
Income :
When depreciation is added
to the net National
Disposable Income, we get
Gross National Disposable
Income.
Gross National Disposable
Income = Net National
Disposable Income +
Depreciation.
18. Basis
National Disposable
Income
National Income
Factor /
Transfer
Income
It includes factor as well
as transfer income.
It includes factor
income only.
Net
Indirect
Taxes
It is estimated at
market prices, i.e. it
includes net indirect
taxes.
It is estimate as
factor cost, i.e. it
excludes net indirect
taxes.
National Disposable Income Vs. National Income
19. Basis
National Disposable
Income
Personal Disposable
Income
Concept
It is a broader concept
as it includes income of
both public and private
sector.
It is a narrow concept
as it includes income
of households only.
Net
Indirect
Taxes
It is inclusive of net
indirect taxes.
It excludes net indirect
taxes.
National Disposable Income Vs. Personal Disposable Income
