Meaning Of National Income
Definition Of National Income
Pigou has defined as “National Income is that part of objective income of the community, including of course income derived from abroad which can be measured in money.” Marshall defined as “The labour and capital of country acting on its natural resources produce annually a certain net aggregate of commodities, material and immaterial including services of all kinds. This is the true net annual income or revenue of the country or national dividend.”
Let us see few illustrations which could help in ascertaining various aspects that may relate in ascertaining the National Income
Illustration 1
Given below is the data of a nation’s economy, you have to ascertain the following.
1. GNP at Factor Cost, 2. NNP at Factor Cost, 3. Net Domestic Product at Factor Cost, 4. Net Domestic Product at market prices.
Data |
Value in Million $ |
GNP at Market Prices |
195,006 |
Net Factor Income from Abroad |
- 402 |
Capital Consumption Allowance |
11,338 |
Net Indirect Taxes |
21,152 |
Solution
Given that GNP at Market Price $195,006
(i) GNP at Factor Cost is GNP
at Market Prices – Indirect Taxes
= $195,006
- 21,152
= $173,854
(ii) NNP at Factor Cost GNP at Factor Cost – Depreciation
= $173,854 - 11,338
= $162,516
(iii) NDP at Factor Cost NNP
at Factor Cost – Net Factor Income
From
abroad
= $162,516 – (- 402)
= $162,918
(iv) NDP at Market Prices NDP at Factor Cost + Indirect Taxes
= $162,918 + 21,152
= $184,070
Illustration 2
Based on the data relating to a nation’s economy determine the following.
1. GNP at Market Prices, 2. Private Income, 3. Personal Income, 4. Personal Disposable Income.
Data |
Value in Million $ |
Net Domestic Factor |
162,858 |
Income from Domestic Product accruing to the Government Sector |
4,666 |
Net Factor Income from Abroad |
- 402 |
Indirect Taxes |
25,752 |
Subsidies |
4,600 |
Interest on National Debt |
1,928 |
Transfers from Government Administrative Department |
3,962 |
Other Current Transfer from other parts of the Globe |
2,542 |
Corporation Tax |
2,502 |
Undistributed Corporate Profits |
928 |
Direct Taxes paid by the house holds |
4,200 |
Consumption of Fixed Capital |
11,398 |
Solution:
(i) GNP at Market Prices = Net
Domestic Product at Factor Cost + Net
Factor Income from abroad + Capital
Consumption
Allowance or Consumption Fixed
Capital
+ Indirect Taxes – Subsidies
= $162,858 + (- 402) + 11,398 + 25,752 – 4.600
= $195,006
To Calculate Private, Personal and Personal Disposable Income, first we have to ascertain the NNP at Factor Cost and since NDP at factor cost is already provided in the given data. Also the total of Transfer Payments needs to be determined.
(a) NNP at Factor Cost = NDP
at Factor Cost + Net Factor Income from
Abroad
= $162,858 + (- 402)
= $162,456
(b) Transfer Payments = $3,962 + 2,542
= $6,504
(ii) Private Income = NNP
at Factor Cost + Transfer Payments +
Interest on Public Debt – Social Security Contributions
– Income
from Government Departments – Profits
and
Surplus of Public Corporations
= $162,456 + 6,504 +1,928 – 4,666
= $166,222
(iii) Personal Income = Private
Income – Undistributed Corporate
Profit
(or
Savings of Private Corporate Sector) –
Corporation
Tax
= $166,222 – 928 – 2,502
= $162,792
(iv) Personal Disposable = Personal
Income – Direct Taxes paid by
Income Households
= $162,792 – 4,200
= $158,592
Foot Note:
- Transfer from government administrative departments and other current transfers from the other parts of the globe are under the heading Transfer Payments.
- Social Security Contributions and Profits and Surpluses of Public Corporations are not given in the problem and hence to be ignored.
Illustration 3
The below tablet is presented with the data of information regarding a nation’s income. You are required to ascertain the following.
1. Net National Product at Market Prices, 2. Disposable Personal Income
Data |
Value in Million $ |
Net Domestic Product at Factor Price |
30,960 |
Income from Domestic Product accruing to the Government Sector |
280 |
Interest on National Debt |
340 |
Transfer Payments by Government |
480 |
Net Private donations from abroad |
60 |
Net earned income from abroad |
160 |
Indirect Taxes |
2660 |
Direct Taxes |
670 |
Subsidies |
200 |
Taxes on Corporate profits |
444 |
Undistributed Profits of Corporations |
210 |
Solution
(i) Net National Product NNP is calculated as follows
NDP at Factor Price $30,960
(+)
Net Earned Income from Abroad $ 160
NNP at Factor Cost $31,120
(+) Indirect Taxes $ 2,660
$33,780
(- ) Subsidies $ 200
NNP at Market Price $33,580
First, in order to compute the Disposable Personal Income, we have to determine the private and personal incomes.
(a) Private Income
NNP at Factor Cost $31,120
(+) Transfer Payments by Government $ 480
(+) Net Private Donations from abroad $ 60
(+) National Debt Interest $ 340
$32,000
(-) Income from Domestic product accruing $ 280
to
government
Private Income $31,720
(b) Personal Income
Private Income $31,720
(-
) Taxes on Corporate Profits $ 444
(-
)Undistributed Profits of Corporations $ 210
Personal Income $31,066
(ii) Disposable Personal Income is calculated as follows
Private
Income $31,066
(-)
Direct Taxes on Persons $ 670
Disposable Personal Income $30,396
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