Meaning of National Income
National Income refers to the total income earned by all individuals of a country in one year.
Main Concepts of National Income
Market value of all final goods and services produced within the country in a year.
GDP = P₁Q₁ + P₂Q₂ + … + PₙQₙ
GDP plus net factor income from abroad.
GNP = GDP + NFIA
Where, NFIA = Net Factor Income from Abroad
GNP minus depreciation (wear and tear of capital).
NNP = GNP – Depreciation
NNP at factor cost = NNP – indirect taxes + subsidies.
NI = (W + R + I + P) + NFIA
| NI |
= |
National Income |
| W |
= |
Wages and salaries |
| R |
= |
Rent |
| I |
= |
Interest |
| P |
= |
Profit |
| NFIA |
= |
Net Factor Income from Abroad |
Total income received by individuals before paying direct taxes.
PI = NI – Undistributed Profit – Corporate Tax – Social Security + Transfer Payments
Income left after paying direct taxes.
DI = PI – Direct Taxes
Average income per person in a year.
PCI = NI ÷ Total Population
Nominal GDP, Real GDP, and GDP Deflator
Nominal GDP
GDP measured at current year prices.
Real GDP
GDP measured at base year prices (shows actual growth).
GDP Deflator
Measures price changes (inflation) between base year and current year.
GDP Deflator = (Nominal GDP ÷ Real GDP) × 100
Methods of Measuring National Income
National income = total value of final goods & services
Final Product Method: Value of all final goods and services
Value Added Method: Sum of value added at each production stage
Gross Value Added = Value of Output – Cost of Intermediate Goods
National income = sum of all incomes earned
Includes:
Wages and salaries
Rent
Interest
Profit
Net indirect taxes
Net income from abroad
Depreciation
National income = total expenditure on final goods and services
Components:
Personal consumption
Government expenditure
Private investment
Net exports (export–import)
Net indirect taxes
Net income from abroad
Depreciation
Calculation of National Income
Product Method
GDP = P₁Q₁ + P₂Q₂ + … + PₙQₙ
GNP = GDP + NFIA
NNP at FC = NNP - Net indirect taxes + subsidies
NI = NNP at FC
Income Method
GDP = (W + R + I + P) + Depreciation + Net indirect taxes
GNP = GDP + NFIA
NNP = GNP – Depreciation
NNP at FC = NNP – Net indirect taxes + subsidies
NI = NNP at FC
Expenditure Method
GDP = C + I + G + (X - M)
GNP = GDP + NFIA
NNP = GNP – Depreciation
NNP at FC = NNP – Net indirect taxes + subsidies
NI = NNP at FC
Difficulties in Measuring National Income in Nepal
🔢
Double Counting
Same goods counted more than once
🏭
Depreciation
Hard to estimate capital wear and tear
💰
Price Changes
Inflation affects comparison
📊
Unreliable Data
Lack of accurate records
🕵️
Illegal Income
Hidden or unreported earnings
📋
Choice of Method
Difficult to select suitable method
🏠
Non-market Activities
Household and unpaid work not counted
📝
Unreported Income
People hide income to avoid taxes
🏪
Intermediate Goods
Risk of counting these twice
🌾
Non-monetized Sector
Many rural transactions are barter-based
📚
Illiteracy & Ignorance
People can't give correct information
👨🌾
Lack of Occupational Specialization
Difficult to classify income sources properly