by National income is the total value of all goods and services produced within a country’s borders over a specific period. This measure provides insight into the overall economic performance of a country, and it is often used to compare the economic performance of different countries. National income is composed of several components, each of which provides insight into different aspects of the economy.
Gross Domestic Product (GDP):
GDP is the most widely used measure of national income. It is the total value of all goods and services produced within a country’s borders over a specific period, usually a year. GDP can be calculated using either the production approach, which adds up the value of all goods and services produced, or the expenditure approach, which adds up the value of all goods and services purchased.
Expenditure approach: GDP = C + I + G + (X – M)
Income approach: GDP = W + R + I + P
Where:
C = Personal consumption expenditures
I = Gross private domestic investment
G = Government consumption expenditures and gross investment
X = Exports
M = Imports
W = Wages and salaries
R = Rental income
I = Interest income
P = Profit income
Gross National Product (GNP):
GNP is another measure of national income that includes the value of all goods and services produced by a country’s residents, whether they are produced within the country’s borders or outside of them. GNP is calculated by adding up the value of all goods and services produced by a country’s residents and subtracting the value of all goods and services produced by non-residents within the country’s borders.
Expenditure approach: GNP = C + I + G + (X – M) + NFP
Income approach: GNP = W + R + I + P + NFP
Where:
NFP = Net factor income from abroad
Net National Product (NNP):
NNP is the value of all goods and services produced by a country’s residents, after subtracting the value of depreciation. Depreciation is the decrease in the value of an asset over time due to wear and tear or obsolescence. NNP provides insight into the country’s net economic output after accounting for the wear and tear of its capital assets.
NNP = GNP – Depreciation
Gross Domestic Income (GDI):
GDI is an alternative measure of national income that measures the income earned by all factors of production, such as labor and capital, in producing goods and services. GDI includes all income earned within a country’s borders, including wages, profits, and rental income.
Net Domestic Product (NDP):
NDP is the value of all goods and services produced within a country’s borders, after subtracting the value of depreciation. NDP provides insight into the country’s net economic output after accounting for the wear and tear of its capital assets.
NDP = GDP – depreciation
Personal Income:
Personal income is the income received by individuals, including wages, salaries, and income from investments. Personal income provides insight into the purchasing power of individuals and their ability to consume goods and services.
Personal income = National income – Undistributed corporate profits – Social security contributions + Transfer payments
Disposable Personal Income (DPI):
DPI is personal income minus taxes. It represents the income available to individuals after accounting for taxes. DPI provides insight into the actual purchasing power of individuals and their ability to consume goods and services.
DPI = Personal income – Personal Taxes
National Disposable Income (NDI):
NDI is the income available to a country’s residents after accounting for taxes and other transfers, such as government subsidies and social security payments. NDI provides insight into the purchasing power of a country’s residents and their ability to consume goods and services.
NDI = National income – Taxes on production and imports + Subsidies
Gross National Income (GNI):
GNI is a measure of the total income earned by a country’s residents, regardless of where they are located. It includes the value of all goods and services produced by a country’s residents, whether they are produced within the country’s borders or outside of them.
Net National Income (NNI):
NNI is the value of all goods and services produced by a country’s residents, after subtracting the value of depreciation. NNI provides insight into the country’s net economic output after accounting for the wear and tear of its capital assets.
Net National Disposable Income (NNDI):
NNDI is the income available to the nation for spending or saving after paying taxes and accounting for depreciation, and is calculated using the following formula:
NNDI = NDI – CCA – indirect taxes + subsidies
National Savings:
National savings is the amount of income that is not consumed and is instead saved. National savings provides insight into a country’s ability to invest in its future.
Net saving = NNDI – personal consumption expenditures – government consumption expenditures
Capital Consumption Allowance (CCA):
CCA is the amount of money required to replace capital assets that are worn out or used up during the production process. CCA provides insight into the depreciation of capital assets over time and the amount of investment required to maintain the country’s productive capacity.
CCA = Gross investment – net investment
Indirect Taxes:
Indirect taxes are taxes on goods and services that are included in their price. They include taxes such as value-added tax (VAT) and sales tax. Indirect taxes provide insight into the amount of revenue that the government receives from taxing consumption.
Subsidies:
Subsidies are payments made by the government to individuals or businesses to encourage economic activity. They are included in the calculation of national income because they represent income received by the recipient. Subsidies provide insight into the government’s efforts to support economic growth.
Net Factor Income from Abroad (NFIA):
NFIA is the difference between income earned by a country’s residents from foreign sources and income earned by foreigners within the country’s borders. NFIA provides insight into the impact of international trade and investment on a country’s economy.
Statistical Discrepancy:
Statistical discrepancy is the difference between the total output estimated using the production approach and the total output estimated using the expenditure approach. This discrepancy can arise due to measurement errors, changes in inventories, and other factors. Statistical discrepancy provides insight into the accuracy of national income estimates.
