A note on..........NATIONAL INCOME & RELATED AGGREGATES 

GNP & GDP

•GNP=GDP+NFIA        (NFIA is Net Factor Income from Abroad=factor income received from abroad -fact income paid abroad)

GDP=GNP-NFIA

•GNP &GDP are calculated at Market Price (MP)& Factor Cost (FC)

•The difference between MP&FC is Net Indirect Tax (NIT) i.e.,

•MP = FC + NIT

•FC = MP – NIT                             (NIT is added to MP & deducted in FC)

•NIT = Indirect Tax - Subsidies

•Tax on goods & services are Indirect Tax.           Subsidies are provided by the Govt.

                        

Therefore,

•GNPmp = GDPmp + NFIA

GDPmp = GNPmp – NFIA          OR        GNPmp = GNPfc + NIT         GDPmp = GDPfc + NIT

           

GDPfc = GNPfc – NFIA

•GNPfc = GDPfc + NFIA

                  OR

•GDPfc = GDPmp – NIT

•GNPfc = GNPmp - NIT

NNP & NDP

•NNP = GNP – D                   (D=depreciation)

•NDP = GDP – D

•NNPfc = NNPmp – NIT

•NNPfc is the National Income

                                             NNPmp = NNPfc + NIT

PERSONAL INCOME

•The part of National Income received by households is PI

•PI = NI – Undistributed profits – Net interest payment made by households – Corporate tax + Transfer payments.

•A part of profit not distributed among factors of production is UP.

•Tax on the profit of firms is Corporate tax.

TRANSFER PAYMENTS

•Unilateral payments without any quid-pro quo.

•(quid-pro-quo means “expecting anything in return”)

•For example – Pensions, scholarships, etc.

TPs are Current Transfer & Capital Transfer.

•Current Transfer are the transfer for current consumption. e.g., pensions, scholarships, etc.

Capital Transfer are the transfer for Capital formation. e.g., financial assistance for infrastructure

PERSONAL DISPOSABLE INCOME

•PDI = PI – Personal Taxes – Non-Tax payments.

NATIONAL DISPOSABLE INCOME

•NDI = NNPmp + Other Current transfers from the rest of the world

NDI gives an idea of the maximum amount of goods & services the domestic economy has at its disposal.

•Gifts & aids are example for Current transfers from the rest of the world.