1. MACRO
ECONOMICS
Product concepts in national
income
BY:CHALU ROY

2. MACRO ECONOMICS
Introduction of National income:
The concept of national income occupies an important place in economic theory national income as
an economic tool it has acquired greater significance in recent past years.it has provided an index to
growth of an economy.
In common parlance the aggregate income earned by all people from all sources in one year`s time is
called as national income of the country.in other words, the total amount of income according to a
country from all kinds of economic activities in a year of time is known as national income. To be
more specific, N.I is explained in two different ways; in monetary terms,it may be explained as
aggregate money value of all the goods and services produced by a country. The flow of goods and
services which become available to people of a nation for consumption purpose during the
accounting period, generally one year .According to national committee of INDIA “A national
income estimates measures the volume of commodities and services turned out during a given
period, counted without duplication”.
According to Prof A.CPigou,N.I is “that part of the objective income of community including of
course income derived from aboard which can be measured in money”.
Products concepts of national income
Gross domestic product (GDP):
GDP is aggregate money valve of final goods and services produced in domestic territory of the
country during an accounting year. According to Prof.Hansen,"By gross domestic product we mean
valve of all the goods and services produced in any given period usually in a year in domestic
territory”. GDP can be calculated by using a formula,
GDP=(C+I+G).
Net domestic product (NDP):
NDF refers to market value of goods and services turned out in economy during a given period after
allowance of depreciation chargers. It’s obtained by subtracting cost from GDP.Hence,

3. MACRO ECONOMICS
“NDP=GDP-Depreciation charges”
GROSS NATIONAL PRODUCT (GNP):
It`s the most important concept in N.IAccounting system-it`s a national concept.GNP is defined as
the money valve of goods and services produced in a country in a year time. According to W.C
Peterson,” Gross national product may be defined as the current market value of goods and services
produced by the economy during an income period.” No allowance is made for depreciation charges.
While calculating GNP, the money value of only goods and services, which are finallyconsumed by
the people are to be considered. Hence the value of all intermediary goods and inputs are to be
excluded in order to avoid double counting.
Income received from foreign investment and from other services rendered aboard must beaded to
the gross domestic product of a country. Similarly the income generated by foreigners should be
deducted from GDP for the purpose of calculating GNP. Therefore,
GNP=GDP+X-M
Where, “X” stands for income generated by the nationals aboard and “M” stands for incomes earned
by foreigners in given country.
Net national product (NNP):
Net national product is the market value of the net output of final goods and services produced by
the country during the relevant income period. In the process of production, a certain part of the
GNP is to be kept aside so that worn out capital is replaced .this part of the GNP is not available
either for consumption or for investment purpose. Hence to deduct this replacement charges with
that of GDP to get NNP. Hence,
, NNP=GNP-Depreciation charges

4. MACRO ECONOMICS
NNP is a useful concept as it gives an idea of increase in total production of the country .It also helps
in analysis of the long term problem maintain and increasing the supply of physical capital in the
country.
National income at factor cost (N.I):
N.I at factor cost refers to all incomes earned by resource owners (factors of production) for their
contribution to their contribution to the production of different goods and services in a year. The
entire NNP can`t be distributed among the factors of production. The manufacturing units have to
pay indirect taxes to government. This amount isn`t distributed to factors of production.Hence,in
order to find out N.I. we have to deduct indirect taxes. Hence,
N.L=NNP-Indirect taxes subsidies
Personal income(P.I):
P.I is the sum of all the incomes earned by the individuals and households in a country during a year. It’s the
amount available to them for spending, paying taxes and saving purposes.P.L is less than N.I because several
deductions are made out of it.
1. Corporate income taxes are to be paid out of corporate profit before they are distributed among
shareholders.
2. A firm may retain a part of corporate profit, these amounts aren`t distributed among the
shareholders. This will reduce their incomes to some extent.
3. Laborers and salaried employee have to contribute their part of provident fund or pension fundetc.
Hence this part of income not available for spending purpose.
On the other hand, the government gives unemployment benefits, old age pension, widow
pensions etc. Which (social security benefits) and to their incomes. Hence,

5. MACRO ECONOMICS
P.I=NI – (Corporate income taxes +
undistributed profits social security
contributions) +transfer payments
Disposable personal income:
The entire P.I accruing to individuals or households it`s not available for consumption purpose. A part of P.I
must be paid to government must be paid government by way of personal direct taxes. Hence that part of
income, which is left after the payment of personal direct taxes, is called as disposable personal income.
DI=PERSONAL INCOME-PERSONAL DIRECT TAXES.
Thus, it`s necessary to note that people do not spend their entire income consumption alone
generally people spend major portion of their disposable income (D.I) on consumption reserving the
remainder for savings. Hence,
DI=CONSUMPTION+SAVINGS.
The concept disposable income indicates purchasing power in hands of people and their actual living
standards. The above mentioned concept of N.I analysis throws light on various aspects of the
economic activities of the people in a nation.