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Meaning Of National Income

 National Income: Meaning and Measurement

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.


Value in Million $

GNP at Market Prices


Net Factor Income from Abroad

- 402

Capital Consumption Allowance


Net Indirect Taxes



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.


Value in Million $

Net Domestic Factor


Income from Domestic Product accruing to the Government Sector


Net Factor Income from Abroad

- 402

Indirect Taxes




Interest on National Debt


Transfers from Government Administrative Department


Other Current Transfer from other parts of the Globe


Corporation Tax


Undistributed Corporate Profits


Direct Taxes paid by the house holds


Consumption of Fixed Capital



(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

                                                =          $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:

  1. Transfer from government administrative departments and other current transfers from the other parts of the globe are under the heading Transfer Payments.
  1. 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


Value in Million $

Net Domestic Product at Factor Price


Income from Domestic Product accruing to the Government Sector


Interest on National Debt


Transfer Payments by Government


Net Private donations from abroad


Net earned income from abroad


Indirect Taxes


Direct Taxes




Taxes on Corporate profits


Undistributed Profits of Corporations



(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
            (- ) 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
(-) 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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