Quick answer: National income is the total money value of all final goods and services produced by a country’s residents in a year. Key measures are GDP (production within the borders), GNP (GDP plus net income from abroad), NNP (GNP minus depreciation), personal income and disposable income. It is estimated by the product (value-added), income and expenditure methods.
| Term | Meaning |
|---|---|
| GDP | Value of final output produced inside the country |
| GNP | GDP + net factor income from abroad |
| NNP | GNP − depreciation |
| Per capita income | National income ÷ population |
| Methods | Product (value added), income, expenditure; social accounting |
National Income is the sum total (monetary value) of all the goods and services produced in the country in a given financial year.
A. C. Pigou described the national dividend as “that part of the objective income of the community, including of course income derived from abroad, which can be measured in money.”
National Income Questions and Answers
Following are the top national income questions and answers or FAQs:
1. What is National Income?
National income is the flow of goods and services that become available to a nation during the year.
2. Write the formula of net National Product?
NNP (Net National Product) = GNP – Depreciation or NNP = GNP – Depreciation.
3. Name the concepts of national income?
There are various concepts or components of national income like Gross National Product, Net National Product, National income, Personal income, Disposable personal income, etc.
4. What do you mean by GNP?
GNP is the market value of all final goods and services produced in a year by a country’s residents, including net factor income from abroad. In formula terms, GNP = GDP + net income from abroad. (GDP, by contrast, counts only production inside the country’s borders.)
5. Name the methods of estimating National Income?
There are four methods:
- Census of production.
- Census of income.
- Census of Expenditure.
- Social Accounting Method.
6. Write the full form of GNP, NNP, and PI?
GNP = Gross National Product.
NNP = Net National Product
PI = Personal Income.
7. Define per capital income?
When we divide total national income by total population, we get per capita income.
8. What is Social Accounting?
Social accounting refers to that part of descriptive economics refers to the production and distribution of national income.
The process of adding up individual accounts gives a set of social accounting.
9. Give the definition of national income As given by Marshall, Pigou, and Fisher?
According to Alfred Marshall, “The labor and capital of a country acting upon its national resources produce annually a certain net aggregate of commodities, material and immaterial, including services of all kinds.
This is the true value of the net annual income of the country or the national dividends.”
According to Irving Fisher, “The national dividend or income consists solely of services as received by ultimate consumers, whether from their material or from their human environments.” Pigou’s definition is given at the top of this page.
10. Difference between Gross National Product (GNP) and Net National Product (NNP)?
The gross national product is the monetary value of all final goods and services produced annually by a nation.
GNP = GDP + Net income from abroad
Whereas when we deduct capital consumption allowance or depreciation or wear and Tear of the machinery like obsolescence from the gross national product we get Net National Product.
NNP = GNP – Depreciation.
11. Difference between Real Income and Nominal Income?
When the national income of a country is expressed in terms of current prices during a particular year, It is known as the nominal income or national income at current prices.
But when it is expressed in terms of constant prices (or the prevailing price of the base year) it is called real income?
12. Difference between Personal Income and Disposable Personal Income?
Personal income is the amount that is actually received by the individuals during the year.
Transfer payment included in personal income whereas retained profits and corporate income tax and social security contributions are deducted from personal.
Personal income helps in estimating the potential purchasing power of households in the country.
PI = NI – Corporate income tax – Retained profits – Social security contributions + Transfer payments.
On the other hand, disposable personal income is the income households actually have available to spend or save. It is termed as take-home income after paying all direct taxes.
DPI = Personal income – Personal direct taxes.
13. Mention any four difficulties in the measurement of National Income?
The following are difficulties in estimating National Income.
- Lack of well organized monetized sector.
- Inadequate and unreliable data.
- Illiteracy and ignorance.
- Lack of occupational specialization.
- Difficulties in economic activities and choice of method.
- The difficulty of errors in calculation.
- Difficulties in the calculation of the value of services.
- The problem of double counting.
- Lack of statistical organization.
- Difficulties in regional diversities.
14. Explain the Relation between economic Welfare and National Income?
National income is an index of the economic welfare of an economy.
Higher per capita income reflects the more economic welfare and vice versa.
15. How does the value-added method compute national?
The value-added (product) method adds up the value added by every producing firm in the country. For each firm, value added = value of output − value of intermediate consumption. Subtracting consumption of fixed capital (depreciation) gives net value added. The elements needed are:
- Value of output.
- Value of intermediate consumption.
- Consumption of fixed capital.
16. Explain the main components of National Income?
Main components of national income are as under:
- Gross National Product at market price.
- Net National Product at market price.
- Gross Domestic Product at market price.
- Net Domestic Product at market price.
- National Product at factor cost.
- Net National Product at factor cost.
- Gross Domestic Product at factor cost.
- Net Domestic Product at factor cost.
- Income from domestic product accruing to the private sector.
- Personal income.
- Personal disposable income.
17. Write any four importance of Social Accounting?
- This method helps in the process of policy formulation and its execution in the economy.
- It helps in the formulation of budgetary policy and the taxable capacity of the people can also be calculated.
- It can be used for long-run decision making and demand forecasting.
- Different sectors of the economy are studied with the help of this method and it measures the production level.
Thus, now you know the top national income questions and answers.
