(a) National income is the income generated by factors of production. But personal income is the income received by factors of production. So personal income is a receipt concept.

Distinguish Between Money National Income And Real National Income Definition
Distinguish Between Money National Income And Real National Income Will
Distinguish Between Money National Income And Real National Income Calculation

(b) Income of the government sector is included in the national income but not included in personal income.

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In this context, it will be relevant to know the views of Paul Studenski who states, “National Income is both a flow of goods and services and a flow of money incomes. It is, therefore, called national product as often as national income.”. All the flows in an economy can be classified into Real Flows or money. According to the National Income Committee Report (1954), National Income of India was ₹ 8710 crore and Per Capita Income was ₹ 225 in 1948 – 49. In India, Central Statistical Organisation (1949) now renamed as Central Statistical Office (CSO) has been formulating National Income. Difference between GNP, GDP and GNI. GNP and GDP both reflect the national output and income of an economy. The main difference is that GNP (Gross National Product) takes into account net income receipts from abroad. GDP (Gross Domestic Product) is a measure of (national income = national output = national expenditure) produced in a particular. The most frequently used measure of national income is Gross Domestic Product (GDP). Real national income is calculated on the base year prices/ constant prices. Nominal national income is the aggregate income within a country that does not account for diminished purchasing power because of inflation or outstanding debt. Personal income is the sum of all incomes actually received by an individual or household from all the sources during a given year. The national income is the aggregate monetary value of all final goods and services produced in a country during one year. Study of personal income comes under the microeconomics. It is a microeconomic concept.

(d) Personal income also includes windfall gains, which are, not including in national income.

(e) Undistributed profits of the companies and corporate profits taxes are the constituents of national income. But these are to be excluded from National income for the calculation of personal income.

(f) Interest on national debt is not a part of national income. But it is a part of personal income.

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Definition of National Income

The total net value of all goods and services produced within a nation over a specified period of time, representing the sum of wages, profits, rents, interest, and pension payments to residents of the nation.

Measures of National Income

For the purpose of measurement and analysis, national income can be viewed as an aggregate of various component flows. The most comprehensive measure of aggregate income which is widely known is Gross National Product at market prices.

Gross and Net Concept

Gross emphasizes 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.

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.

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'.

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

Gross National Product and Gross Domestic Product

For some purposes we need to find the total income generated from production within the territorial boundaries of an economy irrespective of whether it belongs to the inhabitants of that nation or not. Such an income is known as Gross Domestic Product (GDP) and found as −

GDP = GNP - Nnet Factor Income From Abroad

Net Factor Income from Abroad = Factor Income Received From Abroad - Factor Income Paid Abroad

Net National Product

The NNP is an alternative and closely related measure of the national income. It differs from GNP in only one respect. GNP is the sum of final products. It includes consumption of goods, gross investment, government expenditures on goods and services, and net exports.

GNP = NNP − Depreciation

NNP includes net private investment while GNP includes gross private domestic investment.

Personal Income

Personal income is calculated by subtracting from national income those types of incomes which are earned but not received and adding those types which are received but not currently earned.

Personal Income = NNP at Factor Cost − Undistributed Profits − Corporate Taxes + Transfer Payments

Disposable Income

Disposable income is the total income that actually remains with individuals to dispose off as they wish. It differs from personal income by the amount of direct taxes paid by individuals.

Distinguish Between Money National Income And Real National Income Definition

Disposable Income = Personal Income − Personal taxes

Value Added

The concept of value added is a useful device to find out the exact amount that is added at each stage of production to the value of the final product. Value added can be defined as the difference between the value of output produced by that firm and the total expenditure incurred by it on the materials and intermediate products purchased from other business firms.

Methods of Measuring National Income

Let’s have a look at the following ways of measuring national income −

Product Approach

In product approach, national income is measured as a flow of goods and services. Value of money for all final goods and services is produced in an economy during a year. Final goods are those goods which are directly consumed and not used in further production process. In our economy product approach benefits various sectors like forestry, agriculture, mining etc to estimate gross and net value.

Income Approach

In income approach, national income is measured as a flow of factor incomes. Income received by basic factors like labor, capital, land and entrepreneurship are summed up. This approach is also called as income distributed approach.

Distinguish Between Money National Income And Real National Income Will

Expenditure Approach

This method is known as the final product method. In this method, national income is measured as a flow of expenditure incurred by the society in a particular year. The expenditures are classified as personal consumption expenditure, net domestic investment, government expenditure on goods and services and net foreign investment.

Distinguish Between Money National Income And Real National Income Calculation

These three approaches to the

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