National Income Definition & Difference from Personal Income

National Income is the total amount paid to factors of production – land, labour, capital and entrepreneur. It is derived from GNP by subtracting from the latter indirect business taxes and depreciation.

National income also means the value of goods and services produced by a country during a financial year. Thus, it is the net result of all economic activities of any country during a period of one year and is valued in terms of money.

National income is an uncertain term and is often used interchangeably with the national dividend, national output, and national expenditure. The understanding the national income definition can be understood through the following concept:

  • Gross Domestic Product (GDP)

This is the monetary value of all goods and services produced in an economy, irrespective of the nationalities of those who produced them, over a given period of time, usually a year.

  • Gross National Product (GNP)

This is the monetary value of goods and services produced by the nationals of a country whether resident within or outside the country. It is simply GDP plus income from abroad (i.e. income earned by nationals of the country resident abroad minus income of foreigners resident within the country).

  • Net National Product (NNP)

This is GNP minus depreciation. It is the value of national product after making allowances for the depreciation of the capital used to produce the output.

Difference  Between National and Personal Income

The National Income is the total amount of income accruing to a country from economic activities in a years time. It includes payments made to all resources either in the form of wages, interest, rent, and profits.

The progress of a country can be determined by the growth of the national income of the country.

In most countries today, an examination of the country’s GNP for various years will show the fluctuations which take place in these countries. A period of rising GNP followed by another period of declining GNP and so on; however, these fluctuations, cause serious strains on the economy.

Therefore, this kind of income serves as an indicator of the nation’s economic activity. It can be calculated by three methods such as income method, value-added method, and expenditure method.

Income method is mainly based on the incomes generated by the factors of production such as labour and land. The expenditure method is based on investment and consumption, while the value-added method is mostly based on the value added to a product during the stages of production.

Personal income is the total amount an average individual receives as income. It differs from national income in two ways. First, some people who have a claim on income do not actually receive it. For example, although all the profit of a firm belongs to the owners, not all of this is eventually paid out to them. Second, some people receive income that is not obtained in exchange for services rendered.

To reconcile personal income and national income, you subtract corporate profits from national income, and add dividends to the result. Then you must deduct contributions for social insurance and add government and business transfer payments.

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