What is Aggregates of National Income – understand with examples

The aggregates of national income include all the terms related to the determination of income for a country whether within it or outside. It majorly includes GDP_MP, NDP_MP, GNP_MP, NNP_MP, GDP_FC, NDP_FC, GNP_FC, and NNP_FC.

Aggregates of National income:

The aggregates of national income can be classified based on the income generated within the country and outside. These are:

Aggregates based on income generated within the territory of country only:

1. Gross domestic product at market price (GDP_MP)
2. Net domestic product at market price(NDP_MP)
3. Gross domestic product at Factor cost(GDP_FC)
4. Net domestic product at factor cost(NDP_FC)

Gross Domestic Product at market price (GDP_MP):

GDP_MP can be defined as the market value of goods and services produced within the domestic territory of a country during an accounting year, inclusive of the depreciation or consumption of fixed capital.

Net Domestic Product at market price (NDP_MP):

Net domestic product at market price refers to the market value of goods and services produced within the domestic territory of a country during an accounting year, exclusive of the depreciation or consumption of fixed capital. Thus, it can be written as :

NDP_MP = GDP_MP – Depreciation

Gross Domestic Product at factor cost (GDP_FC):

GDP_FC can be defined as the sum total of the factor incomes including compensation of employees, rent, interest and profit generated within the domestic territory of a country during an accounting period including the depreciation. Thus, it can be calculated as:

GDP_FC = Compensation of employees +rent + Interest + Profit + Depreciation (Consumption of fixed capital)

Net Domestic Product at factor cost (NDP_FC):

NDP_FC can be defined as the sum total of the factor incomes including compensation of employees, rent, interest and profit generated within the domestic territory of a country during an accounting period excluding the depreciation. Hence, it can be written as:

NDP_FC = Compensation of employees +rent + Interest + Profit

Aggregates based on income generated within and outside the territory of country :

1. Gross national product at market price (GNP_MP)
2. Net national product at market price(NNP_MP)
3. Gross National product at Factor cost(GNP_FC)
4. Net national product at factor cost(NNP_FC)

Gross National Product at market price (GNP_MP):

Gross national product at market price refers to the sum total of the market value of goods and services produced within the domestic territory of a country during an accounting year, exclusive of the depreciation or consumption of fixed capital and net factor income from abroad. In other words, it can be defined as the sum of gross domestic product at market price and net factor income from abroad. Thus, it can be written as:

GNP_MP = GDP_MP + NFIA

where,

NFIA refers to net factor income from abroad

Net National Product at market price (NNP_MP):

Net national product at market price refers to the sum total of the market value of goods and services produced within the domestic territory of a country during an accounting year, exclusive of the depreciation or consumption of fixed capital and net factor income from abroad. In other words, it can be defined as the sum of net domestic product at market price and net factor income from abroad. Hence, it can be written as:

NNP_MP = NDP_MP + NFIA

where,

NFIA refers to net factor income from abroad

Gross National Product at factor cost (GNP_FC):

It refers to the sum total of factor incomes including compensation of employees, rent, interest and profit generated within the domestic territory of a country during an accounting period including the depreciation and net factor income from abroad. In simple words, it can be defined as the total gross domestic product at factor cost and net factor income from abroad. Hence,

GNP_FC = GNP_FC + NFIA

Net National Product at factor cost (NNP_FC):

It refers to the sum total of factor incomes including compensation of employees, rent, interest and profit generated within the domestic territory of a country during an accounting period excluding the depreciation. and net factor income from abroad. In simple words, it can be defined as the total of net domestic product at factor cost and net factor income from abroad. Hence,

NNP_FC = NDP_FC + NFIA

Identification of national income:

The standard measure to identify the national income is with the net national product at factor cost. In other words, national income refers to the sum total of factor incomes earned by normal residents of a country during an accounting period against the factor services rendered. Thus,

National income = NNP_FC

Or

National income = NDP_FC + NFIA

Or

National income = Sum Total of factor incomes earned by normal residents of a country during an accounting period against the factor services rendered

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References:

Introductory Microeconomics – Class 12 – CBSE (2020-21)