Meta Description: Learn about the meaning of national income and its various measures including GDP, GNP, and NNI. Explore how adjustments are made from market prices to basic prices and from gross values to net values.

National income refers to the total value of goods and services produced within a country’s borders over a specific time period. It is a crucial economic indicator as it provides a measure of a country’s economic performance and standard of living. In this post, we will delve into the concept of national income, its measurement, and adjustments.

Measurement of National Income

There are three primary measures of national income: Gross Domestic Product (GDP), Gross National Product (GNP), and Net National Income (NNI).

• • GDP is the market value of all goods and services produced within a country’s borders over a given period of time, usually a year.
    • It includes the value of all goods and services produced by the country’s residents, including both citizens and non-citizens, as well as any income earned by foreign residents within the country’s borders.
    • GDP is often used as a measure of a country’s standard of living and economic growth.
  • GNI is a measure of a country’s total income, including income earned by its citizens and businesses both domestically and abroad.
    • GNI is calculated by adding the country’s GDP to net income received from abroad, such as income earned by foreign residents, and subtracting income earned by domestic residents abroad.
    • GNI provides a more comprehensive measure of a country’s economic activity and standard of living, as it takes into account both domestic and foreign economic activity.

• Net domestic product (NDP) and net national income (NNI) only include net investment.
  • Net investment refers to the amount of investment made in an economy after subtracting the amount of depreciation of existing capital stock.
  • Gross investment is the total amount of investment made in an economy, including both investment in new capital stock and investment in the replacement of worn-out capital stock.
  • Depreciation is a measure of the amount of capital stock that has become worn out or obsolete during a given period of time.
  • NET domestic product (NDP) = GDP – depreciation
  • NET national income (NNI) = GNI – depreciation

Adjustment of Measures

One of the challenges of measuring national income is accounting for the impact of price changes and the depreciation of capital assets. To address these issues, adjustments are made to the measures from market prices to basic prices and from gross values to net values.

Adjustments from market prices to basic prices involve removing taxes on production and subsidies from the value of goods and services produced.

GDP at Market Prices = GDP at Factor Costs + Indirect Taxes − Subsidies

• Taxes on production are taxes levied on goods and services at each stage of production, while subsidies are payments made by the government to firms to encourage production.
• The resulting basic price represents the value of the good or service at the point of production, excluding taxes and subsidies.

Adjustments from gross values to net values involve accounting for the depreciation of capital assets used in production. Capital assets such as machinery and equipment lose value over time due to wear and tear, and this loss in value is referred to as depreciation. Net values account for the value of goods and services produced after accounting for the depreciation of capital assets.

Conclusion

In summary, national income is a key economic indicator that measures the total value of goods and services produced within a country’s borders. Its measurement is complicated by the impact of price changes and the depreciation of capital assets. Adjustments from market prices to basic prices and from gross values to net values are used to address these issues.

Keywords: national income, GDP, GNP, NNI, market prices, basic prices, gross values, net values, taxes on production, subsidies, depreciation.

Read more on the National Income Statistics: CIE AS Notes, Topic Questions.

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