National Income Meaning

National Income Meaning

National Income refers to the money value of all final goods and services produced by normal residents of a country during an accounting year, Out of this depreciation and net-indirect taxes are deducted and Net factor income from abroad (NFIA) is added.

Or

National Income refers to the sum total of all the factor incomes, earned by normal residents of a country during a period of one year.

National Income Meaning

Normal residents- Normal residents refer to an individual or an institution who ordinarily resides in the country for more than one year, and whose Centre of economic interest also lies in that country. 

Centre of Economic Interest’ implies two things:
1. The resident lives or is located within the Domestic Territory; and
2. The resident carries out basic economic activities of earnings, spending and accumulation from that location.

Following are not included under the category of Normal residents:-

  1. Foreign tourist and visitors ;
  2. Foreign staff of embassies, officials, diplomats, and members of the armed forces of a foreign country;
  3. International Organizations;
  4. Employees of International organization staying less than one year;
  5. Crew members of foreign vessels. Commercial travelers and seasonal workers;
  6. Border workers who live near the international border and cross the border on a regular basis to work in the other country.

National Income Meaning

Final goods and services- Final goods are those goods that are ultimately consumed rather than used in the production of other goods.

Or

Final goods refer to those goods which are used either for consumption or for investment purposes.

These goods satisfy the wants of ultimate producers or consumers or both.

Buying of furniture by a household consumer for his house is final good for him whereas the same when bought by a producer for his office, is producer’s final goods.

Money Value of Final goods is included in both National and Domestic Income.

Intermediate Goods- Intermediate goods are those goods, which are used either for resale or for further production.  For Example, intermediate goods are- milk used by a tea shop for selling tea, Milk used for making sweets.

All those goods which are used by the producers for producing other goods are known as Intermediate goods. 

These goods are used as inputs in the production of other goods such as partially finished goods. These goods are demanded by producing other goods.

Depreciation Loss in the value of fixed assets due to normal wear and tear; passes of time and expected obsolescence in technology, known as depreciation.

Depreciation is Also known as  Consumption of Fixed Capital or Current Replacement Cost.

Indirect taxes- Indirect tax is defined as the tax imposed by the government on a taxpayer for goods and services rendered. Indirect tax is a type of tax where the incidence and impact of taxation do not fall on the same entity.

In the case of indirect tax, the burden of tax can be shifted by the taxpayer to someone else.

Net Indirect Tax (NIT)= Indirect Tax – Subsidies.

Subsidies- Subsidies are the ‘economic assistance’ given by the government to the firms and households, with a motive of general welfare. If we deduct these subsidies from indirect taxes, we get net indirect taxes.

Net factor income from abroad- Difference between the factor incomes earned by our residents from abroad and factor income earned by non-residents within our country.

Or

Difference between the factor incomes received from the rest of the world and factor income paid to the rest of the world.

NFIA= Factor incomes earned from abroad-Factor income paid to abroad

NFIA = Net Compensation of Employees + Net income from property and entrepreneurship + Net Retained earning

Components of NFIA:

It contains three elements viz:
i) Net Compensation of Employees: This refers to the income from work earned by the resident workers in the ROW ‘less’ the same earned by the resident workers of ROW in a resident country.
ii) Net Operating Surplus: This refers to the difference between the income from property & entrepreneurship earned by the residents in ROW & the same earned by the foreign residents in a resident country.
iii) Net Retained Earnings of Resident Companies in Abroad: It is the difference between the retained earnings of the resident companies abroad & the same of the foreign companies in a resident country.

Factor Income- Factor income refers to income received by factors of production(Land, Labour, Capital, Entrepreneur) for rendering factor services in the production process.

Thus, we can say that National income is defined as the money value of all final goods and services produced by normal residents of a country, in an accounting year, whether operating within the domestic territory of the country or outside.

National Income Meaning

Features of National Income

*National Income is a Flow concept.

*National Income is always expressed in terms of money.

*National Income is measured for a particular period of time, one accounting year.

*National Income stands for the income of a particular country.

*National Income included money value of final goods and services.

*The National income is a study of the Macroeconomics concept.

*National income presents the picture of the overall performance of the economy as a whole in the course of time one financial year.

*While calculating national income, the transfer income in the form of old-age pension, unemployment allowances, scholarships, etc., is not included.
*National Income includes all the factor incomes.

National Income Meaning

 

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