National Income

Various Approaches To National Income

There are various approaches to National Income which are as follows

• Gross National Product (GNP)
• Net National Product (NNP)
• Gross Domestic Product (GDP)
• National Income (N.I)
• Personal Income (P.I)
• Disposable Personal Income (DPI)
• Per Capita Income (PCI)

Gross National Product (GNP)

When the aggregate goods and services produced within the country during a fixed period of time are called Gross National Product, it includes industrial, agricultural, and the production of other sectors produced in the country. It also includes the income of different people, like doctors, teachers, and government employees. While adding up the goods and services, only the value of current-year production is considered.

Basically, GNP includes Private Consumption, Public Consumption, Private Investment, Public Investments, Foreign Investments, and the difference between exports, and imports. 

GNP= C+I+G+(X-M)

Net National Product (NNP)

If depreciation allowances or wear and tear expenses on capital goods and services are deducted from Gross National Product, the remaining will be Net National Product. 

NNP = GNP – Depreciation Allowances

Gross Domestic Product (GDP)

The income generated with the use of goods and services within a country during a fixed time period, which is generally a year with the help of internal resources is called Gross Domestic Product. While external resources are excluded from GDP. 

GDP = GNP – Income from external sources. 

National Income (N.I)

When the indirect taxes are deducted from and subsidies are added to Net National Product then it generates National Income.

Indirect Taxes: It is a kind of tax that is imposed on one person but may be shifted to another person. The final burden of the tax will be on the other person. Producers pay such type of duty. The burden of tax bears by the consumers because the duties are included in the prices of products. Examples of Indirect duties are Sales tax, Custom Duty, etc. 

Subsidies: The facilities given by the government to their people are called subsidies.

Hence

N.I = NNP – Indirect Taxes + Subsidies

Personal Income (P.I)

Personal income is the income that individuals earn on their own during the year. It includes N.I., transfer payments, and direct taxes.

Transfer Payments: The income an individual receives without doing any labor. For example,  Zakat, Charity, Pension and gifts, etc. 

Direct Taxes: The kind of tax that is legally imposed on a person and is payable by the same person. This tax is not transferable to another person. The inceptive impact and incidence of tax are on the same person. E.g income tax and property tax are direct taxes.

P.I = N.I + Transfer Payments + Direct Taxes – Undistributed profit of joint stock companies.

Disposable Personal Income (DPI)

Disposable Personal Income is the remaining income after paying direct taxes from personal income. 

DPI = P.I – Direct Taxes. 

Per Capita Income (PCI)

Per capita income is the average per annum income of the individuals of a country. PCI is obtained by dividing N.I by the total population of the country. Thus,

PCI = N.I/Total Population