National Income Concept

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Concepts of National Income
National income is an uncertain term which is used interchangeably with national dividend, national output and national expenditure. On this basis, national income has been defined in a number of ways. In common parlance, national income means the total value of goods and services produced annually in a country.
There are a number of concepts pertaining to national income and methods of measurement relating to them.
The important concepts of National Income are:
1.) Gross Domestic Product (GDP).
2.) Gross National Product (GNP).
3.) Net National Product (NNP) at market price.
4.) Personal Income
5.) Disposable Income
Let us explain these concepts of National Income in detail:
(A) Gross Domestic Product (GDP):
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It includes wages and salaries, as well as employer contributions to social security and other such programs.
• Gross operating surplus (GOS) is the surplus due to owners of incorporated businesses. Often called profits, although only a subset of total costs is subtracted from gross output to calculate GOS.
• Gross mixed income (GMI) is the same measure as GOS, but for unincorporated businesses. This often includes most small businesses.
The sum of COE, GOS and GMI is called total factor income; it is the income of all of the factors of production in society. It measures the value of GDP at factor (basic) prices. The difference between basic prices and final prices (those used in the expenditure calculation) is the total taxes and subsidies that the government has levied or paid on that production. So adding taxes less subsidies on production and imports converts GDP at factor cost to GDP(I).
Total factor income is also sometimes expressed as:
Total factor income = employee compensation + corporate profits + proprietor's income + rental income + net interest[11]
Yet another formula for GDP by the income method
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National income is the value of goods and services produced as expressed in terms of money at current prices. But it does not indicate the real state of the economy.
It is possible that the net national product of goods and services this year might have been less than that of the last year, but owing to an increase in prices, NNP might be higher this year. On the contrary, it is also possible that NNP might have increased but the price level might have fallen, as a result national income would appear to be less than that of the last year. In both the situations, the national income does not depict the real state of the country. To rectify such a mistake, the concept of real income has been evolved.
In order to find out the real income of a country, a particular year is taken as the base year when the general price level is neither too high nor too low and the price level for that year is assumed to be 100. Now the general level of prices of the given year for which the national income (real) is to be determined is assessed in accordance with the prices of the base year. For this purpose the following formula is

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