Chapter – 3
Concepts and Aggregates Related to National Income
Introduction
Before understanding and calculating national income, it is important to understand the
different aggregates of national income.
The major aggregates of national income are:
1. Gross Domestic Product at Market Price (GDPmp)
2. Gross National Product at Market Price (GNPmp)
3. Net National Product at Market Price (NNPmp)
4. Net Domestic Product at Market Price (NDPmp)
5. Net Domestic Product at Factor Cost (NDPfc / NDI)
6. Gross Domestic Product at Factor Cost (GDPfc / GDI)
7. Net National Product at Factor Cost (NNPfc / National Income)
8. Gross National Product at Factor Cost (GNPfc)
9. Private Income
10. Personal Income
11. Personal Disposable Income
12. National Disposable Income
---
1. Gross Domestic Product at Market Price (GDPmp)
GDPmp is the total market value of all final goods and services produced within the domestic
territory of a country during an accounting year. It includes depreciation.
Features of GDPmp
1. Includes only goods and services produced within the domestic territory.
2. Includes depreciation.
3. Includes only final goods and services.
4. Intermediate goods are not included.
5. Second-hand goods are excluded.
6. Helps avoid double counting.
Formula
GDPmp = Market value of all final goods and services produced within a country +
Depreciation
---
2. Gross National Product at Market Price (GNPmp)
GNPmp is the total market value of all final goods and services produced by the normal
residents of a country during an accounting year plus Net Factor Income from Abroad
(NFIA).
Formula
GNPmp = GDPmp + NFIA
---
Net Factor Income from Abroad (NFIA)
NFIA refers to the difference between:
Income earned by residents from abroad and
Income paid to foreigners within the domestic territory.
Examples
Wages
Interest
Rent
Profit
Important Points
If NFIA is positive → GNP > GDP
If NFIA is negative → GNP < GDP
---
3. Net National Product at Market Price (NNPmp)
When depreciation is deducted from GNPmp, we get NNPmp.
Formula
NNPmp = GNPmp – Depreciation
---
4. Net Domestic Product at Market Price (NDPmp)
When depreciation is deducted from GDPmp, we get NDPmp.
Formula
NDPmp = GDPmp – Depreciation
---
5. Net Domestic Product at Factor Cost (NDPfc / NDI)
NDPfc is the total factor income earned within the domestic territory of a country during an
accounting year.
It includes:
Wages
Rent
Interest
Profit
Formula
NDPfc = NDPmp – Indirect Taxes + Subsidies
---
Why are Indirect Taxes Deducted?
Indirect taxes are included in market prices, but producers do not receive this amount
because it goes to the government.
Examples
GST
Sales tax
Excise duty
---
Why are Subsidies Added?
Government provides subsidies to producers so that goods can be sold at lower prices.
Therefore, subsidies are added to find the actual factor cost.
---
6. Gross Domestic Product at Factor Cost (GDPfc / GDI)
GDPfc is the sum total of factor incomes earned within the domestic territory plus
depreciation.
Formula
GDPfc = NDPfc + Depreciation
---
7. Net National Product at Factor Cost (NNPfc / National Income)
NNPfc is also known as National Income.
It is the total factor income earned by normal residents of a country during an accounting
year.
Formula
NNPfc = NDPfc + NFIA
or
National Income = Wages + Rent + Interest + Profit
---
8. Gross National Product at Factor Cost (GNPfc)
GNPfc is the total factor income earned by normal residents of a country including
depreciation and NFIA.
Formula
GNPfc = GDPfc + NFIA
---
Difference Between GDP and GNP
Basis GDP GNP
Meaning Value of goods and services produced within domestic territory Value of
goods and services produced by normal residents
Scope Limited to domestic territory Includes income from abroad
NatureDomestic concept National concept
Formula GDP = GNP – NFIA GNP = GDP + NFIA
---
9. Private Income
Private income refers to the income received by the private sector from all sources.
It includes:
Wages
Rent
Interest
Profit
Transfer payments
Interest on national debt
Formula
Private Income = Income from domestic product to private sector + NFIA + Current transfers
from government + Interest on national debt
---
10. Personal Income
Personal income is the income actually received by individuals and households during a
year.
Formula
Personal Income = National Income – Corporate Tax – Undistributed Profits – Social
Security Contributions + Transfer Payments
---
11. Personal Disposable Income (PDI)
Personal Disposable Income is the income left with individuals after paying direct taxes.
Formula
PDI = Personal Income – Direct Taxes
This income can be used for:
Consumption
Savings
---
12. National Disposable Income (NDI)
National Disposable Income is the net income available to a country for spending.
Formula
NDI = National Income + Net Indirect Taxes + Net Current Transfers from Rest of the World