National Income: Definition and Importance

Study Notes

National income refers to the total value of goods and services produced within a country's borders over a specific period, usually a year.
It is a measure of a country's economic performance and is used to evaluate the standard of living of its citizens.

Expenditure Approach: adds up the amount spent by households, businesses, government, and foreigners on goods and services.
Income Approach: adds up the income earned by households and businesses in the form of wages, rents, and profits.
Value-Added Approach: adds up the value added to goods and services at each stage of production.

Gross Domestic Product (GDP): the total value of goods and services produced within a country's borders.
Net Domestic Product (NDP): GDP minus depreciation (the value of capital goods used up in production).
National Income (NI): NDP minus indirect taxes (taxes on goods and services) plus subsidies.
Personal Income (PI): NI minus undistributed corporate profits, social insurance contributions, and transfer payments.
Disposable Income (DI): PI minus personal taxes.

National income is the total value of goods and services produced within a country's borders over a specific period, usually a year, and is a measure of a country's economic performance and standard of living.

The Expenditure Approach adds up the amount spent by households, businesses, government, and foreigners on goods and services.
The Income Approach adds up the income earned by households and businesses in the form of wages, rents, and profits.
The Value-Added Approach adds up the value added to goods and services at each stage of production.

Gross Domestic Product (GDP) is the total value of goods and services produced within a country's borders.
Net Domestic Product (NDP) is GDP minus depreciation (the value of capital goods used up in production).
National Income (NI) is NDP minus indirect taxes (taxes on goods and services) plus subsidies.
Personal Income (PI) is NI minus undistributed corporate profits, social insurance contributions, and transfer payments.
Disposable Income (DI) is PI minus personal taxes.

It helps to understand the economy's growth rate and standard of living.
It enables comparison between countries.
It is used to make economic decisions, such as setting monetary and fiscal policies.
It helps to identify areas of the economy that need improvement.

It does not account for income inequality.
It does not consider the value of non-market activities, such as household work.
It may not accurately reflect the quality of life or happiness of citizens.