National Income and Related Aggregates – Summary (Sandeep Garg)

1. Meaning of National Income

National Income is the total monetary value of all final goods and services produced in a country during a given period (usually one year). It is measured in terms of money and includes only the value of final goods to avoid double counting.

2. Basic Terms and Aggregates

Domestic Territory

Refers to the geographical area within which a country’s laws apply, including embassies abroad and excluding foreign embassies inside the country.

Normal Residents

Individuals or institutions that normally reside in a country for more than one year and have economic interest there.

3. Domestic Product Aggregates

• GDP at Market Price (GDPMP) – Value of all final goods and services produced within the domestic territory at market prices.

• GNP at Market Price (GNPMP) – GDPMP + Net Factor Income from Abroad (NFIA).

• NDP at Market Price (NDPMP) – GDPMP – Depreciation.

• NNP at Market Price (NNPMP) – GNPMP – Depreciation.

4. Factor Cost vs. Market Price

• Market Price – Includes indirect taxes and excludes subsidies.

• Factor Cost – Excludes indirect taxes and includes subsidies.
  Formula:
  Factor Cost = Market Price – Indirect Taxes + Subsidies

5. National Income at Factor Cost (NNPFC)

Also called National Income in the true sense:
NNPFC = NNPMP – Indirect Taxes + Subsidies

6. Net Factor Income from Abroad (NFIA)

= Factor income earned by normal residents from abroad – Factor income paid to non-residents.

7. Other Important Aggregates

• Private Income – Income from all sources accruing to the private sector.

• Personal Income – Income actually received by individuals (includes transfer payments).

• Disposable Income – Personal income after direct taxes.

  • Personal Disposable Income – Available to households for consumption and saving.

  • National Disposable Income – NNPFC + net current transfers from abroad.

8. Methods of Calculating National Income

Sandeep Garg explains three main methods:

1. Value Added Method (Product Method) – Sum of value added at each stage of production.

2. Income Method – Sum of factor incomes (rent, wages, interest, profit).

3. Expenditure Method – Sum of final expenditures (consumption + investment + government expenditure + net exports).

9. Precautions in Each Method

Each method requires careful inclusion and exclusion of items to avoid errors and double counting (e.g., excluding intermediate goods, including only factor incomes, etc.).

10. Importance of National Income Data

• Measures economic growth.

• Helps in policy-making.

• Indicates standard of living.

• Guides development planning.