National Income Components

National Income Components

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GDP or, Gross Domestic Product, GNP or, Gross National Product, NNP or, Net National Product at Market costs, NNP at Factor Cost or National Income, Personal and Disposable Income are the key components of National Income. Let us go through these National Income fundamentals in depth.

1. GDP or, the Gross Domestic Product - alludes to entire market worth of all final services and goods that are presently produced in the country in a year. Four points should be made about the above description. First, it calculates the market worth of current yearly production of goods and services. GDP is therefore a monetary measure. Second, in order to calculate GDP properly, all products and services generated in a particular year must be tallied just once. As a result, GDP should only reflect the value of final products and services while excluding transactions involving intermediate commodities. Third, GDP only covers goods and services created in the current year. Deals on the market involving items created in prior periods, like old houses, old vehicles, and industries established before, aren't accounted for in current-year GDP. Finally, GDP alludes to the worth of products and services generated within a country's domestic area by residents or non-nationals.

2. GNP or, Gross National Product - alludes to the entire market value of all final products and services generated in a year is referred to as the Gross National Product. GNP incorporates net foreign factor income, but GDP does not. As a result, GNP equals GDP plus net factor income from abroad. Net factor income from outside is calculated as the difference between factor income received by Indian nationals from abroad and factor income given to foreign citizens who work in India.

3. Net National Product (NNP) at Market Price - The market worth of all final commodities and services after depreciation is the NNP. That is, once depreciation charges are removed from GNP, we receive NNP at market pricing. As a result, NNP = GNP - Depreciation. So, Depreciation is the use or decrease in the market value of fixed capital caused by wear and tear.

4. Net National Product (NNP) at Factor Cost (National Income) - The amount of salaries, rent, interest, and profits given to factors for their involvement in the production of goods and services in a year is referred to as NNP at factor cost (National Income). It should be emphasised that NNP at Factor Cost equals NNP at Market Price less Indirect Taxes and Subsidies.

5. Personal Income - is the total of all incomes earned by people or their households in a particular year. Some income is generated but not collected by families, like Social Security contributions, corporate income taxes, and not distributed profits, and is included in national income. Income (transfer payment) is received but not currently earned, like old age pensions, unemployment doles, relief payments, and so on. As a result, in order to convert from national to personal income, we must deduct income earned but not received and add income received but not yet earned. As a result, personal income equals national income minus Social Security contributions minus corporate income taxes minus undistributed corporate profits plus transfer payments.

6. Disposable Income - After deducting personal taxes such as income taxes and personal property taxes, what is left is referred to as disposable income. Thus, the Disposable Income becomes the difference between Personal Income and the personal taxes. Also, the Disposable Income is saved or, consumed. So, the Disposable Income equals the sum total of consumption and saving.