National Income Accounting
National Income Accounting measures aggregate output and income. BIEAP tests GDP, GNP, NNP, factor cost versus market price, personal and disposable income, real versus nominal values, and the income, expenditure and value-added methods.
Core rules
- GDP at market price is the value of final goods and services produced within domestic territory in a year.
- GNP = GDP + net factor income from abroad.
- NNP = GNP − depreciation. NNP at factor cost is national income.
- GDP at factor cost = GDP at market price − indirect taxes + subsidies.
- Personal income includes transfer receipts; disposable income = personal income − direct taxes.
- Real GDP uses constant prices; nominal GDP uses current prices. The GDP deflator = nominal GDP ÷ real GDP × 100.
- Avoid double counting: count final goods or value added, not intermediate goods. Transfer payments are not production.
Worked example
GDP at market price = ₹1,000 crore; net factor income from abroad = ₹50 crore; depreciation = ₹100 crore; indirect taxes = ₹80 crore; subsidies = ₹30 crore. GNP = 1,050. NNP at market price = 950. NNP at factor cost = 950 − 80 + 30 = ₹900 crore.
Traps
Do not include intermediate goods, second-hand sales or transfer payments in GDP. Do not confuse GNP with GDP when foreign income is present. NNP at market price is not national income; national income is NNP at factor cost. Real GDP changes only with quantities, not current prices.