National Income Notes

National Income and Related Aggregates

Net Factor Income from Abroad (NFIA)

• Definition: NFIA is the difference between factor income received from the rest of the world and factor income paid to the rest of the world.
• Formula: $NFIA = Factor\ Income\ Earned\ From\ Abroad - Factor\ Income\ Paid\ Abroad$
• Significance: NFIA differentiates between 'Domestic Income' and 'National Income'.
• Estimation: Domestic income is usually estimated first, and then National Income is derived from it.

Factor Income

• Factor Income From Abroad: Income earned by normal residents of a country from the rest of the world (ROW) in the form of wages, salaries, rent, interest, dividend, and retained earnings.
• Factor Income To Abroad: Income paid to normal residents of other countries (non-residents) for their factor services within the economic territory.

National Income

• Formula: $National\ Income = Domestic\ Income + Factor\ income\ from\ abroad - Factor\ income\ to\ abroad$
• Explanation:
  • Factor income from abroad: Contribution of normal residents to production outside the economic territory.
  • Factor income to abroad: Contribution of non-residents to production inside the economic territory.
• Abbreviation: The difference between Factor income from abroad and Factor income to abroad is termed as "Net factor income from abroad" or NFIA.
• Simplified Formula: $National\ Income = Domestic\ Income + NFIA$

Basic Aggregates of National Income

• Goods and services produced are expressed in terms of money because they cannot be added together in terms of quantity.

List of Aggregates:

1. Gross Domestic Product at Market Price (GDPMP)
2. Gross Domestic Product at Factor Cost (GDPFC)
3. Net Domestic Product at Market Price (NDPMP)
4. Net Domestic Product at Factor Cost (NDPFC or Domestic Income)
5. Gross National Product at Market Price (GNPMP)
6. Gross National Product at Factor Cost (GNPFC)
7. Net National Product at Market Price (NNPMP)
8. Net National Product at Factor Cost (NNPFC or National Income)

Gross Domestic Product at Market Price (GDPMP)

• Definition: It refers to the gross market value of all final goods and services produced within the domestic territory of a country during a period of one year.
• 'Gross': signifies that no provision has been made for depreciation, i.e., it includes depreciation.
• 'Domestic': signifies that it includes goods and services produced by all units located within the domestic territory, irrespective of whether they are produced by residents or non-residents.
• 'Market Price': signifies that it includes the amount of indirect taxes paid and excludes the amount of subsidy received, i.e., it shows that net indirect taxes (NIT) have been included.
• 'Product': signifies that only final goods and services have to be included.
• Deriving other aggregates: Other aggregates can be derived by making adjustments in GDPMP.

Gross Domestic Product at Factor Cost (GDPFC)

• Definition: It refers to the gross money value of all the final goods and services produced within the domestic territory of a country during a period of one year.
• Formula: $GDPFC = GDPMP - Net\ Indirect\ Taxes (NIT)$
• NIT Formula: $NIT = Indirect\ Taxes - Subsidies$

Net Domestic Product at Market Price (NDPMP)

• Definition: It refers to net market value of all the final goods and services produced within the domestic territory of a country during a period of one year.
• Formula: $NDPMP = GDPMP - Depreciation$

Net Domestic Product at Factor Cost (NDPFC)

• Definition: It refers to net money value of all the final goods and services produced within the domestic territory of a country during a period of one year.
• Formula: $NDPFC = GDPMP - Net\ Indirect\ Taxes - Depreciation$
• Alternative Name: NDPFC is also known as Domestic Income or Domestic factor income.

Domestic Concepts

• GDPMP, GDPFC, NDPMP, and NDPFC are four Domestic concepts.
• The term ‘Domestic’ signifies that the contribution of only those producers (whether resident or non-resident) is to be included who are within the domestic territory of the country.
• Relationships:
  • GDP at FC = GDP at MP - NIT
  • NDP at MP = GDP at MP - Depreciation
  • NDP at FC = GDP at MP - NIT - Depreciation

Gross National Product at Market Price (GNPMP)

• Definition: It refers to the gross market value of all the final goods and services produced by the normal residents of a country during a period of one year.
• Formula: $GNPMP = GDPMP + Net\ factor\ income\ from\ abroad$
• Relationship to GDPMP: GNPMP can be less than GDPMP when NFIA is negative and more than GDPMP when NFIA is positive.

Gross National Product at Factor Cost (GNPFC)

• Definition: It refers to gross money value of all the final goods services produced by the normal residents of a country during a period of one year.
• Formula: $GNPFC = GNPMP - Net\ Indirect\ Taxes (NIT)$

Net National Product at Market Price (NNPMP)

• Definition: It refers to net market value of all the final goods services produced by the normal residents of a country during a period of one year.
• Formula: $NNPMP = GNPMP - Depreciation$

Net National Product at Factor Cost (NNPFC)

• Definition: It refers to net money value of all the final goods and services produced by the normal residents of a country during a period of one year.
• Formula: $NNPFC = GNPMP - Net\ Indirect\ Taxes - Depreciation$
• Alternative Name: NNPFC is also known as National Income.

National Concepts

• GNPMP, GNPFC, NNPMP, and NNPFC, are four National concepts.
• The term 'National' signifies that the production of only normal residents of the country is to be included even if they are outside the domestic territory of the country.
• Relationships:
  • GNP at FC = GNP at MP - NIT
  • NNP at MP = GNP at MP - Depreciation
  • NNP at FC = GNP at MP - NIT - Depreciation

Domestic Income (NDPFC) vs. National Income (NNPFC)

Relationships Between Domestic and National Income Aggregates

• NDP at FC = NDP at MP - NIT
• GNP at FC = GDP at FC + NFIA
• NNP at FC = NNP at MP - NIT
• GDP at FC = GDP at MP - NIT
• GNP at MP = GDP at MP + NFIA
• NNP at MP = GDP at MP + NFIA - Depreciation - NIT