What Is National Income? Define!

What Is National Income
National Income is a major component of macroeconomics. It helps to evaluate and compare the economic performance of an economy for different time periods. The actual performance of economy helps to make the programs and policies like fiscal policy, monetary policy, exchange rate policy etc.
National income is the sum of all individual income in a country during a given period of time. It is the income received by the various factors of production. To produce goods and services, a producer has to employ factors of production like land, labor, capital and entrepreneurship. To employ these factors he has to pay wage for labor, rent for land, interest for capital & dividend for investors. The sum of all these payments is the national income. National income is also known as national product or national expenditure. It is a flow of output, income and expenditure. If Yi is the income of the individual than national income is y=∑Yi.
Different economists have given definition of national income from different angles. According to Marshall-“The labor and capital of country acting upon its natural resources produce annually a certain net aggregate of commodities, material & immaterial, including services of all kinds. This is net annual income revenue of a country or the national dividend”.
According to Pigou- ‘The national dividend is that part of the objective income of the community including, of course income derived from abroad, which can be measured in money”.
Different economists can define the term ‘National Income in different but conclusively we can say national income is the sum of income paid to or received by various factors of production.
Factors to be included in national income
1)      Income of all individuals or factors of production from their participation on economic activities which includes:
·         Wages, salaries, bonus, commission and other benefits received from employer before deduction of tax and social security contributions like insurance, provided fund etc.
·         Net income from rental & royalties of individuals.
2)      Total undistributed profits by private business corporations should include in individual income. After adding such profit on individual income we will get total private income (PI).
3)      National Income(NI) is computed by adding undistributed profit of public corporations in private income(PI).
4)      National Income does not include transfer payments like:
·         Government transfer payments eg. Social security allowances
·         Business transfer payments eg. Business contribution on charity.
·         Individual transfer payments eg. Gifts or income sharing among individuals.
5)      National Income does not include the income receipts from the capital gain on sale of assets since it arise from  increase in price not any value addition on that assets.
6)      National income does not include income received from public borrowing as they cannot add any value. But interest on such borrowing will included.
7)      The proceeds received from the sale of assets are not income and not included in national income. However, current flow of services of these assets, eg. Services of houses , interest from bond, etc. are income and are included in national income.
8)      All the costs incurred in the process of production or distribution have to be deducted from the gross receipts occurring from the sale of goods or services.
The summations of point (1) and (8) give rise to Net Domestic Income(NDI)
9)      Net Domestic Income plus income of normal residents from abroad minusincome paid for foreign employee equal Net national income (NEI) or NI.

So, Net National Income(NNI)= Net Domestic Income(NDI)+Net Foreign Factor Income(NFFI)
           Or, NI= GDI+NFFI
Here, GDI= Gross Domestic Income.


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