National income is the total money value of all final goods and services produced in a country in one year. It shows the economic strength of a nation. In India, the National Statistical Office (NSO) measures national income.
Key Concepts
- GDP (Gross Domestic Product) – value of goods and services produced within the country's borders.
- GNP (Gross National Product) – GDP plus net income earned from abroad.
- NNP (Net National Product) – GNP minus depreciation.
- National Income – NNP at factor cost.
Methods of Measurement
National income is calculated using three methods. All three should give the same result.
- Product (Output) Method – adds the value of all final goods and services. It avoids double counting by using value added.
- Income Method – adds all incomes earned as rent, wages, interest and profit by factors of production.
- Expenditure Method – adds total spending on goods and services: consumption, investment, government spending and net exports.
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Important Terms
- Factor Cost – cost of factors of production used.
- Market Price – factor cost plus indirect taxes minus subsidies.
- Per Capita Income – national income divided by total population.
- Depreciation – loss in value of capital goods over time.
Real vs Nominal
Nominal GDP is measured at current prices, while Real GDP is measured at constant prices of a base year. Real GDP removes the effect of inflation and shows true growth.
Quick Revision Points
- NSO measures national income in India.
- GDP covers production within borders.
- GNP = GDP + net foreign income.
- NNP = GNP - depreciation.
- Three methods: product, income, expenditure.
- Per capita income = national income / population.
- Real GDP is at constant prices.
- Market price = factor cost + indirect taxes - subsidies.