National Income – Defining a Country’s RichnessTo simply understand what

National Income is, it can be represented as - National Income defines a

country's wealth. This income depicts the value of goods and services which
are produced by an economy. This gives effect to the net result of all the
economic activities performed in the country.Imagine how you would define a
country’s wealth without any economic term? In that case, there would be no
accountability and responsibility linked with the production in the country.
The resources would go uncalculated and there would be a vague economic
atmosphere. Thus, let us indulge in this study which talks about National
Income. Understanding National Income(Image will be uploaded
soon)National income is the sum total of the value of all the goods and
services manufactured by the residents of the country, in a year., within its
domestic boundaries or outside. It is the net amount of income of the citizens
by production in a year. To be more precise, national income is the
accumulated money value of all final goods and services produced in a
country during one financial year. Computation of National Income is very
vital as it indicates the overall health of our economy for that particular
year.The aggregate economic performance of a nation is calculated with the
help of National income data. The basic purpose of national income is to
throw light on aggregate output and income and provide a basis for the
government to formulate its policy, programs, to maximize the national
welfare of the people. Central Statistical Organization calculates the national
income in India.Definition of National IncomeThe definition of National
Income if of two types-Traditional Definition of National IncomeModern
DefinitionTraditional Definition of National Income-According to Marshall:
“The labor and capital of a country acting on its natural resources produce
annually a certain net aggregate of commodities, material and immaterial
including services of all kinds. This is the true net annual income or revenue
of the country or national dividend.”Modern Definition This definition has two
subpartsGDPGNPGross Domestic ProductGross Domestic Product,
abbreviated as GDP, is the aggregate value of goods and services produced
in a country. GDP is calculated over regular time intervals, such as a quarter
or a year. GDP as an economic indicator is used worldwide to measure the
growth of countries economy. Goods are valued at their market prices, so:All
goods measured in the same units (e.g., dollars in the U.S.)Things without
exact market value are excluded.Constituents of GDPWages and
salariesRentInterestUndistributed profitsMixed-incomeDirect
taxesDividendDepreciationThe Formula for Calculation of GDPGDP =
consumption + investment + government spending + exports -
imports.Gross National ProductGross National Product (GNP) is an estimated
value of all goods and services produced by a country’s residents and
businesses. GNP does not include the services used to produce
manufactured goods because its value is included in the price of the finished
product. It also includes net income arising in a country from
abroad.Components of GNPConsumer goods and servicesGross private
domestic incomeGoods produced or services renderedIncome arising from
abroad.Formula to Calculate GNPGNP = GDP + NR (Net income from assets
abroad or Net Income Receipts) - NP (Net payment outflow to foreign
assets).Importance of National IncomeSetting Economic PolicyNational
Income indicates the status of the economy and can give a clear picture of
the country’s economic growth. National Income statistics can help
economists in formulating economic policies for economic
development.Inflation and Deflationary GapsFor timely anti-inflationary and
deflationary policies, we need aggregate data of national income. If
expenditure increases from the total output, it shows inflammatory gaps and
vice versa.Budget PreparationThe budget of the country is highly dependent
on the net national income and its concepts. The Government formulates the
yearly budget with the help of national income statistics in order to avoid any
cynical policies.Standard of LivingNational income data assists the
government in comparing the standard of living amongst countries and
people living in the same country at different times.Defense and
DevelopmentNational income estimates help us to bifurcate the national
product between defense and development purposes of the country. From
such figures, we can easily know, how much can be set aside for the defense
budget.Sets of methods for measuring National IncomeThere are four
methods of measuring national income. The type of method to be used
depends on the availability of data in a country and the purpose which is
attempted for.Income MethodIn this method, we add net income payments
received by all citizens of a country in a particular year. Net incomes that
result in all the factors of production like net rents, wages, interest, and
profits are all added together, but income received in the form of transfer
payments are omitted.Product MethodAccording to this method, the
aggregate value of final goods and services produced in a country during a
financial year is computed at market prices. To find out GNP, the data of all
the productive activities-agricultural products, Minerals, Industrial products,
the contributions to production made by transport, insurance,
communication, lawyers, doctors, teachers. Etc are accumulated and
assessed.Expenditure MethodThe total expenditure by the society in a
financial year is summed up together and includes personal consumption
expenditure, net domestic investment, government expenditure on goods
and services, and net foreign investment. This concept is backed by the
assumption that national income is equal to national expenditure.Value
Added MethodThe distinction between the value of material outputs and
material inputs at every stage of production is Value added.GDP Vs GNPThe
Gross Domestic Product and the Gross National Product are the two most
widely used measures in a country’s calculation of aggregate economic
unit.GDP is the measure of the value of goods and services that are being
produced within a country's borders, by the citizens and the non-citizens.
While GNP determines the value of goods and services that are being
produced by the country's citizens in the domestic and abroad spectrum.
GDP is popularly used by the global economies at large. While, the United
States eliminated the use of GNP in the year 1991, thereby adopting GDP as
the measure to compare their economy with other economies.India’s
Richness: National Income of India 2020-2021In the year 2020-2021, India
had a total NI of 135.13 lakh crore, well this is a provisional estimate only.
However, in the round of the fourth quarter (in the month of January-March),
the country had an economic growth of 1.6%, while the GDP was calculated
at Rs. 38.96 lakh crore in the fourth quarter in the year 2020-21, this is count
is slightly different to Rs 38.33 lakh crore in the fourth quarter of 2019-20.
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topicsCommunicationDebit and CreditDifference Between Microeconomics
and MacroeconomicsEconomic And Non- Economic ActivitiesBasic Problems
of an EconomyLIC- Life Insurance Corporation of
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PagesIndia’s Role in World BusinessLimitations of EconomicsQuantity Theory
of MoneyLimitations of AccountingTheory of CostPovertyIndia’s Role in World
BusinessLimitations of EconomicsQuantity Theory of MoneyLimitations of
AccountingTheory of CostPoverty12FAQs on National Income1. Name the four
top countries with the highest GDP?The top four countries with the highest
GDP are:The United States with $19.485 trillionChina with $12.238
trillionJapan with $4.872 trillionGermany with $3.693 trillion2. Who manages
all the monetary policies of India?The RBI, Reserve Bank of India manages
the monetary policy of India. For further information check out the Vedantu
app or website.3. How are GDP and GNP different from each other?GDP is the
value of goods and services produced within a country's borders, by citizens
and non-citizens in a financial year. GNP measures the value of goods and
services produced by only a country's citizens but both within and outside
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