Page 210 - DECO405_MANAGERIAL_ECONOMICS

Unit 13: Basic National Income Concepts

So, we have three kinds of national income estimates: Notes
1. National income as net aggregate output
2. National income as sum of distributive shares
3. National income as aggregate value of final products

13.1.1 Gross and Net Concept

Gross emphasises that no allowance for capital consumption has been made or that depreciation
has yet to be deducted.
Net indicates that provision for capital consumption has already been made or that depreciation
has already been deducted.
Thus the difference between the gross aggregate and the net aggregate is depreciation.
i.e.,
GNP at market price/factor cost = NNP at market price/factor + Depreciation cost.

13.1.2 National and Domestic Concepts

The term national denotes that the aggregate under consideration represents the total income
which accrues to the normal residents of a country due to their participation in world production
during the current year. Thus, the term 'national' is used to emphasise that the aggregate under
consideration covers all types of factor incomes accruing to normal residents of a country
irrespective of whether the factors of production supplied by them are located at home or
abroad.
As against this, it is also possible to measure the value of the total output or income originating
within the specified geographical boundary of a country known as "domestic territory". The
resulting measure is called "domestic product".
In other words, the distinction between "national" and "domestic" aggregates lies in the frame of
reference — the former takes the normal residents of a country, the latter takes a given
"geographical area". Here, national produce differs from domestic product by the amount of net
factor income from abroad.
GNP at market price/factor cost = GDP at market price/factor cost + Net factor income from
abroad
NNP at market price/factor cost = NDP at market price/factor cost + Net factor income from
abroad

Net factor income from abroad = Factor income received from abroad — Factor income paid
abroad.

13.1.3 Market Prices and Factor Costs

The valuation of the national product at market prices indicates the total amount actually paid
by the final buyers while the valuation of national product at factor cost is a measure of the total
amount earned by the factors of production for their contribution to the final output.
GNP at market price = GNP at factor cost + Indirect taxes – Subsidies.

NNP at market price = NNP at factor cost + Indirect taxes – Subsidies.

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