National Income and Related Aggregates Class 12 CBSE Board
Income of a nation can be expressed in various aggregates (total) or variants. There are 8 variants in which Income of a Nation can be measured.
These 8 variants are termed as domestic and national Income aggregates. We are going to study this topic only restricted to the syllabus of class 12 CBSE Board.
Broadly Income of a Country is expressed as
- Domestic Income
- National Income
There are few variables such as net, gross, factor cost, and market price. These 4 variables divide domestic and national income into 4 aggregates each.
National Income and related aggregates
So Domestic Income can be expressed in 4 variants
- Gross Domestic Product at Market Price (GDPat mp)
- Gross Domestic Product at factor cost (GDPat FC)
- Net Domestic Product at Market Price (NDP at mp)
- Net Domestic Product at Factor Cost (NDP at FC)
In the same way National Income can be expressed in 4 variants too.
- Gross National Product at Market Price (GNPat mp)
- Gross National Product at factor cost (GNPat FC)
- Net National Product at Market Price (NNP at mp)
- Net National Product at Factor Cost (NNP at FC)
Now Lets understand each concept one by one.
What do you mean by Domestic Income of a country
In order to understand the concept of Domestic Income, you must have a strong understanding of the concept of Domestic Territory and Normal Residents.
I have discussed this topic in detail in below lecture
Read Here:- What is Domestic Territory and Normal Residents
The definition of Domestic Income
Domestic Product includes production activity of production units located in the economic territory irrespective of the fact whether carried out by the residents or non-residents. The money value of Domestic Product is termed Domestic Income.
Book, Sandeep Garg
Important points in the definition:-
- Includes all production activities within in the economic territory of a country
- Includes all production activities of resident and non-residents both
Define Domestic Aggregates
Domestic aggregates refer to a group of statistical measures of the value of production activity, being carried out by production units located within the economic territory of a country.
It includes 4 variants
- Gross Domestic Product at Market Price (GDPat mp)
- Gross Domestic Product at factor cost (GDPat FC)
- Net Domestic Product at Market Price (NDP at mp)
- Net Domestic Product at Factor Cost (NDP at FC)
Lets explain each variants one by one
Define Gross Domestic Product at Market Price (GDP at MP)
GDP at MP is the value of the contribution to production by all the production units located within the economic territory of a country, undiminished by consumption of fixed capital and indirect tax and without adding subsidies.
Book, S.k Aggarwal
Explanation:-
Gross:- Here gross signifies that domestic product is undiminished by deduction of consumption of fixed capital.
Domestic Product:- It includes production activites with in the economic territory of a country.
Market Price:- It signifies that the value of production is calculated by multiplying by the price which buyers paid, and not the price, which production units actually receive. In other words, market price implies that the value of the domestic product is undiminished by ‘net indirect tax (Indirect Tax – Subsidies).
GDP at MP = Sum of the contribution of all production units
Define Gross Domestic Product at factor cost (GDPat FC)
GDP at FC is the value of the contribution to production by all the production units located within the economic territory of a country, undiminished by consumption of fixed capital and diminished by indirect tax, and increased by subsidies.
Book, s.k aggarwal
GDP at FC = GDP at MP – Indirect tax + Subsidies
Define Net Domestic Product at Market Price (NDP at MP)
NDP at MP is the value of the contribution to production by all the production units located in the economic territory of a country, diminished by the consumption of fixed capital, but undiminished by indirect tax without adding subsidies.
Book, S.K Aggarwal
NDP at MP = GDP at MP – Consumption of fixed Capital
Define Net Domestic Product at Factor Cost (NDP at FC)
NDP at FC is the value of the contribution of all the production units located within the economic territory of a country, diminished by the consumption of fixed capital and indirect tax and increased by subsidies.
Book, S.K Aggarwal
NDP at FC = GDP at MP – consumption of fixed capital – Indirect Tax + Subsidies
Conclusion:-
Domestic aggregates are calculated by making adjustments of consumption of fixed capital, indirect tax and subsidies.
What do you mean my National Income of a country
National income a little broader concept. It differs from domestic income on the basis of domestic territory and production activities done by residents and non-residents.
Definition of National Income
National Product includes production activities of normal residents irrespective of the fact whether performed within the economic territory or outside it.
Book, sandeep Garg
Important points in Definition
- Production activities carried out by normal residents of a country are included
- production activities performed within or outside the domestic territory are included
Mathematically National Income can be represented in following way
National Income = Domestic Income + Net Factor Income from abroad (NFIA)
NFIA = Factor Income received from abroad by residents – Factor Income paid to non-residents in domestic territory
Define National Aggregates
A national aggregate is a measure of the contribution of residents of a country to production both inside and outside the economic territory of the country.
It includes 4 variants
- Gross National Product at Market Price (GNP at MP)
- Gross National Product at factor cost (GNP at FC)
- Net National Product at Market Price (NNP at MP)
- Net National Product at Factor Cost (NNP at FC)
Define Gross National Product at Market Price (GNP at MP)
Gross National Product at MP includes production activities of normal residents irrespective of the fact whether performed within the economic territory or outside it undiminished by consumption of fixed capital and indirect tax and without adding subsidies
GNP at MP = Sum of the contribution of residents of country to production within or outside the economic territory
Define Gross National Product at Factor Cost (GNP at FC)
Gross National Product at MP includes production activities of normal residents irrespective of the fact whether performed within the economic territory or outside it undiminished by consumption of fixed capital and diminished by indirect tax and increased by subsidies.
GNP at FC = GNP at MP – Net Indirect Tax (Indirect tax – Subsidies)
Define Net National Product at Market Price (NNP at MP)
Net National Product at MP includes production activities of normal residents irrespective of the fact whether performed within the economic territory or outside it, diminished by the consumption of fixed capital but undiminished by net Indirect tax.
NNP at MP = GNP at MP – Consumption of Fixed Capital
Define Net National Product at Factor Cost (NNP at FC)
Net National Product at FC includes production activities of normal residents irrespective of the fact whether performed within the economic territory or outside it, diminished by the consumption of fixed capital and indirect tax and increased by subsidies.
Further Reading:-
| S.N | Topics |
| 1. | What is GDP Deflator |
| 2. | What are externalities in economics |
| 3. | Limitations of GDP as a measure of welfare |
| S.N | Topics |
| 1. | 150+ Numerical of Value Added Method |
| 2. | 150+ Numerical of Income Method |
| 3. | 150+ Numerical of Expenditure Method |
| 4. | 150+ Numerical of National Income and related aggregates |
| S.N | Topics |
| 1. | 250+ MCQs of National Income |
