National Income and its Concepts Professor Marshall defines National Income as Sum of all the physical goods

produced and services provided by utilizing the natural resources of the country with the help of labour and capital. In addition to this net income from abroad is also included. ccordingly National Income is the summation of all the goods produced and services provided and the net income from abroad.! pparently Marshallian definition seems to be very simple and comprehensive" but it has some practical shortcomings #$% statistically it is difficult to estimate accurately about the produced goods and services. #&% 'here may be the possibility of double and multiple counting #(% certain portion of produced goods is )ept for personal consumption. *ecause of such shortcomings Pigou defined National Income as +nly those goods and services will be included in National Income which are sold against money! but Pigou,s definition is not acceptable for those countries where there is limited use of money and many a goods are traded under barter system" Professor -. M .eynes has used three methods or approaches to define National Income. $. 'he sum of all e/penditures which are made on consumption and investment goods is )nown as National Income. 'his method is )nown as 0/penditure method. &. 'he sum of incomes of all the factors of production engaged in production process is also )nown as National Income. 'his method is )nown as National Income at 1actor Prices Method. (. If we subs tract the cost production from total output produced in the economy we will get National Income. ccording to present ideas National Income may be defined as the aggregate factor income which arises from the current production of goods and services by the nation,s economy. C+NC0P'S +1 N 'I+N 2 INC+M03 'here are five concepts of National Income which are discussed below. $. 4ross National Product #4NP%3 4ross National Product #4NP% is defined as the total mar)et value of all final goods and services produced in a year. It is a measure of the current output of economic activity in the economy. 'wo things must be noted in regard to 4ross National Product. #i% It measures the mar)et value of the annual output. In other words 4NP is a momentary measure. 'here is no other way of adding up the different sorts of goods and services produced in a year e/cept with their money prices. *ut in order to )now accurately the changes in physical output" the figure for 4ross National Product #4NP% is ad5usted for price changes by comparing to a base year as we do when we prepare inde/ numbers. #ii% 1or calculating 4ross National Product #4NP% accurately" all goods and services produced in any given year must be counted once" but not more than once. Most of the goods go through a services of production stages before reaching" mar)et. s a result" parts or components of many goods are bought and sold many times. 6ence to avoid counting several times the parts of goods that are sold and resold" gross national product only includes the mar)et value of final goods and ignores transactions involving intermediate goods. &. Net National Product #NNP%3 'he second important concept of National Income is that of Net National Product #NNP%. In the production of gross national product of a year" we consume or use up some capital i.e. e7uipment" machinery etc. 'he capital goods" li)e machinery" wear out or

depreciate in value as a result of its consumption or use in the production process. 'his consumption of fi/ed capital or fall in value of capital duets wear and tear is called depreciation. 8hen charges for depreciation are deducted from gross national product" we get net national product. It means the mar)et value of all final goods and services after providing for depreciation. 'here fore it is called national income at mar)et prices.! 'hus Net National Product 9 4ross National Product : ;epreciation (. National Income at 1actor cost or National Income3 National Income at 1actor cost means the sum of all incomes earned by resources suppliers for their contribution of land" labour" capital and entreprenial ability which go into the year,s net production or in other words society in terms of economic resources to produce net output. It is rarely the national income at factor cost for which we sue the term National Income. 'he Net National Product #NNP% is summation of mar)et values of all the goods produced and services provided in a country in a year. *ut NNP does not show what actually has been earned by countryman during a year. In NNP the business ta/es are also included. Such ta/es do not represent the incomes of the people. ccordingly to )now National Income #N.I% we will have to subtract the indirect ta/es and add subsidies in NNP. It is shown as NI 9 NNP : I' < S 6ere I' shows indirect ta/es while S is for subsidies. =. Personal Income #P.I%3 Personal Income is the sum of all incomes actually received by all individuals or households during a given year. National Income" that is income received" must be different for the simple reason that some income which earned as social security" contributions" corporate income ta/es and undistributed corporate profits is not actually received by households and conversely some income which is received as transfer payments is not currently earned. ccordingly if we include transfer payments and subtract undistributed profits etc. from National Income we get Personal Income #P.I%. It is as PI 9 NI < > < P' : ?P 6ere P' is ta/es on profits" > is transfer payment" and ?P is undistributed profits. @. ;isposable Personal Income #;.P.I%3 fter a good part of personal income is paid to government in the form of personal ta/es li)e income ta/" personal property ta/ etc. 8hat remains of personal income is called disposable income. If personal ta/es are subtracted from personal income we get ;isposable Personal Income #;PI%. It is as ;PI 9 PI : 'P 9 C < S 6ere 'P is personal ta/es. A. 4ross ;omestic Product #4;P%3 4ross ;omestic Product #4;P% is the total mar)et value at current prices of all final goods and services produced within a year by factors of production located within country. If we subtract the income earned through foreign services we get 4;P. It is as

4;P 9 4NP : 1I 6ere 1I is 1oreign Income.