The Macro economic identities of national income are as follows:
(a) Gross Domestic Product(GDP): GDP is the aggregate of the final goods and services produced in the domestic territory of a country during an accounting year. It is the total money value of all final goods and services produced within the country by the nationals of the country and by the foreign nationals staying in the country during a year. It does not include goods and services produced by non-resident Indians, It can be expressed as follows: GDP = C + I + G + net ‘X’
where, C – Consumption expenditure of public,
I – Investment expenditure of private sector
G – Governments consumption and investment expenditure.
net X – Difference between value of exports and imports.
(b) Net Domestic Product (NDP): NDP refers to the market value of all final goods and services turned out in an economy during a given period of time after making allowance for depreciation charges. It is obtained by subtracting depreciation from GDP. NDP = GDP – Depreciation.
In simple words we can say that NDP is the net market value of final goods and services produced by its residents and nonresidents with in the domestic territory of a country in a year.
(c) Gross National Product (GNP): It is the most important concept in N.I accounting. It-is a National concept. GNP is defined as the total market value of all final goods and services produced in a country in a year time.
No allowance for wear and tear cost i.e., depreciation is made. While calculating the GNP, the money value of only the goods and services which are finally consumed by the people are to be taken into account. Hence, the value of all intermediary goods and inputs are to be excluded in order to avoid double or multiple counting.
The income received from foreign investments and from other factor services rendered abroad should be added to the gross domestic product of a country. Similarly, the income generated by the foreigner in a given country should be deducted from the GDP for the purpose of computing the GNP.
GNP = GDP + X – M .
X= income earned by national abroad .
M= Income earned by foreigners in the given country.
GNP includes:
- The value of all consumption goods which are currently produced.
- The value of all capital goods currently produced.
- Total Government expenditure on buying various goods and services.
- Net export value
- Net amount earned abroad.
- GNP = (C+I+G) + ( X – M ) + (R – P)
(d) 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.
NNP = GNP- Depreciation.
(e) Personal Income (PI): The concept of personal income refers to the sum of all the incomes actually received by the individual and households in a country during one year. It is the amount available to them for spending, paying taxes and saving purposes PI is less than NI because several deduction are made out of it.
Personal income = National income – undistributed profit – social security contribution + transfer payment The concept of PI helps us to know the potential purchasing power of people.
(f) Disposable personal Income: The entire PI accounting to individual or house hold in not available for consumption purpose. A part of PI have to be paid to the Government by way of personal direct tax. Hence, that part of the personal direct taxes is called as disposable personal income. DI = PI – Personal Direct Tax.
Disposable income can either be spent entirely of a part of the income can be saved. Therefore, the Personal Disposable Income may be written as:
PDI = Consumption Expenditure + Savings.
(g) Nominal and Real National Income: When the national income is expressed in the prices prevailing in the year in which it is calculated it is called nominal national income. For example, if the national income of the year 2014 – 15 is calculated as per the prices of 2014 – 15, it becomes nominal national income.
The real national income is expressed in terms of base year prices. While calculating National income, a particular year is taken as base year. The price level is assumed to be as 100 for the base year. The formula to calculate real national income is as follows:
Real National Income = Nl for current year x\(\frac {\textit{Base year price index(100)}}{\textit{Current year price index}} \)
(h) Per Capita Income: Per capita income refers to the income of an individual person. It
is the average income of the people of a country. The per capita income is calculated by dividing the national income by population. Thus,
Per Capital Income =\(\frac {\textit{National income}}{\textit{Total population}} \).
