National Income and Its Measurement
National income measures the money value of all final goods and services produced in a country during a year. The KSEAB SSLC JTS exam tests definitions of GDP, GNP, NNP, NDP, factor cost versus market price, the three measurement methods, real versus nominal income and per capita income. Karnataka and India examples help you see why only final goods are counted.
Core rules and concepts
- GDP at market price is the value of final output within domestic territory.
- GNP = GDP + net factor income from abroad (NFIA).
- NNP = GNP - depreciation. NDP = GDP - depreciation.
- NNP at factor cost = NNP at market price - indirect taxes + subsidies.
- Three methods: product/value-added, income and expenditure. All should give the same total.
- Real GDP uses constant prices; nominal GDP uses current prices. Real GDP shows true growth.
- Per capita income = national income ÷ population. Transfer payments, intermediate goods and second-hand sales are excluded.
Worked example
GDP at market price = ₹1,000 crore; depreciation = ₹100 crore; NFIA = -₹20 crore; indirect taxes = ₹80 crore; subsidies = ₹20 crore. NDP at market price = 1,000 - 100 = ₹900 crore. NNP at market price = 900 + (-20) = ₹880 crore. NNP at factor cost = 880 - 80 + 20 = ₹820 crore. The negative NFIA reduces national income because factor income sent abroad exceeds income received from abroad.
Traps that cost marks
Do not add intermediate goods or transfer payments such as pensions. Do not confuse GDP with GNP when NFIA is non-zero. Depreciation is subtracted once, not added. Indirect taxes are subtracted and subsidies added to move from market price to factor cost. A rise in nominal GDP may only reflect inflation.