NATIONAL INCOME

  Net Domestic Product at Factor Cost (NDP_FC)

Net Domestic Product at Factor Cost (NDP_FC) 

is defined as the total factor incomes earned by 

the factors of production. In other words, it is 

sum of domestic factor incomes or domestic 

income net of depreciation. 

As mentioned above, market price includes  indirect  taxes  imposed  by government. We have to deduct indirect taxes and add the subsidies in order to calculate that part of domestic product which actually accrues to the factors of production. The measure that we obtain so is called Net Domestic Product at factor cost.

NDP_FC = NDP _MP – Net Indirect Taxes

= Compensation of employees

+ Operating Surplus (rent + interest+ profit)

+ Mixed Income of Self- employed

 Net National Product at Factor Cost (NNP_FC) or National Income

National Income is defined as the factor income accruing to  the normal residents   of the country during a year. It is the sum of domestic factor income and net factor income from abroad. In other words, national income is the value of factor income generated within the country plus factor income from abroad in an accounting year.

NNP_FC = National Income = FID (factor income earned in domestic territory) + NFIA.

If NFIA is positive, then national income will be greater than domestic factor incomes 

 Per Capita Income

The GDP per capita is a measure of a country's economic output per person. It is obtained by dividing the country’s gross domestic product,  adjusted by  inflation, by the total population. It serves as an indicator of the standard of living of a country 

Personal Income:

While national income is income earned by factors of production, Personal Income is the income received by the household sector including Non-Profit Institutions Serving Households. Thus, national income is a measure of income earned and personal income is a measure of actual current income receipts of persons from all sources which may or may not be earned from productive activities during a given period of time. In other words, it is the income ‘actually paid out’ to the household sector, but not necessarily earned. Examples of this include transfer payments such as social security benefits, unemployment compensation, welfare payments etc. Individuals also contribute income which they do not actually receive; for example, undistributed corporate profits and the contribution of employers to social security. Personal income forms the basis for consumption expenditures and is derived from national income as follows:

PI = NI + income received but not earned – income earned but not received.

An important point to remember is that national income 

is not the sum of personal

incomes because personal income includes transfer payments ( eg. pension) which are excluded from national income. Also, not all national income accrues to individuals as their personal income.

   Disposable Personal Income (DI)

DI = PI - Personal Income Taxes

Disposable personal income is a measure of amount of the money in the hands of the individuals that is available for their consumption or savings. Disposable personal income is derived from personal income by subtracting the direct taxes paid by individuals and other compulsory payments made to the government.