Page 20 - DECO402_Macro Economics

Unit-2: National Income : Concept of National Income

Who are Normal Residents? Notes

Normal residents of a country are those
(i) Generally lives in that country, and
(ii) Whose economic interest are centred to that country.
Living a person near by border, goes daily to earn livelihood, crossing border, but his centre of interest
remain his own country, because he returns to his family daily. Such a person will be considered
normal residents of own nation.
This matter should be understand through and through that, that person is citizen of a country,
necessarily not that they are the normal residents of that country. For example, an Indian citizen
resides in U.S.A for more than one year then he will be considered a normal residents of U.S.A, not
of India, rather by birth he is an Indian. Similarly person like Sonia Gandhi, however by birth she is
a citizen of Italy, rather than she will be considered a normal residents of India because generally she
resides in India and her centre of interest is India also.
This matter is important also that “Normal resident” term, person and his rites are also included.
State Bank of India like financial institutions branch may situated in London. That branch’s economic
interest will be associated to India. As much profit that branch will earn that profit will be considered
a part of State Bank of India’s whole part.

National Income is attributed to Normal Resident only
A country’s national income’s relationship is only to normal resident of that country. Its meaning is that
in India resides all foreigner and institutions earn factor income will not considered a part of India’s
national income, if that person and institutions are not the normal resident of India. Repeating this
fact, in India by non-residents earned income, rather a part of domestic income of India, but it is not
considered a part of India’s national income. Therefore, if resides rest of the world by our residents
earns factor income added to domestic income and in India resides by non-residents earned income
is subtracted from it, then domestic income will converted into national income. This relationship of
domestic income and national income is explained by following equation.
Domestic income: [(Net Domestic Product at Factor cost (NDP )] + (i) Factor income earned by our
FC
residents from rest of the world - (ii) Factor income earned by residents of rest of the world in our
country
= [National Income (Net National Product at Factor Cost)]
(i) – (ii) is called net factor income obtained from foreign : Accordingly, above equation can
be written as follows.)
Domestic Income (Net Domestic Product at Factor Cost) + Net Factor Income obtained from
Foreign
= National Income (Net National Product at Factor Cost)
Or
Net National Product at Factor Cost – Net Factor Income obtained from Foreign = Domestic
Income

Notes A country’s national income relationship is only to normal residents of that
country.

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