25-05-2012, 03:49 PM
NATIONAL INCOME AND MACROECONOMIC
NATIONAL INCOME.pdf (Size: 167.45 KB / Downloads: 239)
National Income
National Income is defined as the sum total of all the goods and services produced in a country, in a particular
period of time. Normally this period consists of one year duration, as a year is neither too short nor long a
period. National product is usually used synonymous with National income.
Alfred Marshall in his ‘Principle of Economics’ (1949) defines National income as
“The labour and capital of a country, acting on its natural resources, produce annually a certain net
aggregate of commodities, material and immaterial, including services of all kinds…..and net income due on
account of foreign investments must be added in. This is the true net National income or Revenue of the
country or the national dividend.”
Irving Fisher defined national income as
“The national dividend or income consists solely of services as received by the ultimate consumers,
whether from their material or from human environments. Thus, a piano or an overcoat made for me this year
is not a part of this year’s income, but an addition to capital. Only the services rendered to me during this year
by these things are income.”
Subsidies
Subsidies refer to difference between the Market Price and Cost of Production.
Gross Domestic Product (GDP)
Gross Domestic Product is the market value of the final goods and services produced within the domestic
territory of a country during one year inclusive of depreciation.
Components of GDP
In GDP we find different components of income namely (1) Wages and salaries (2) Rent (3) Interest (4) Dividends
(5) Undistributed Profit (6) Mixed income (7) Direct taxes.
GDP at market price
GDP at Market Price is estimated by deducting the value of intermediate consumption from the value of output
produced by all the producers within the domestic territory of a country. In other words, it is estimated as the
sum total of gross value added at the market price.
Difference between GDP and GNP
GDP/I = NI – Net income from abroad. The major difference between GNP and GDP is that the former includes
net income from abroad whereas the latter includes only that income which has been produced within the
political boundary of the nation.
Gross Domestic Product at factor cost or gross domestic income.
Gross Domestic Product at factor cost or gross domestic income is the sum total of the compensation of
employees, operating surplus and mixed income earned by the factors of production in an accounting year plus
depreciation or consumption of fixed capital.
Gross Domestic Product at factor cost can also be estimated by deducting net indirect taxes from gross
domestic product at market price.