Question

National income is often estimated as. ​

Answer 1

National income is estimated as Net National Product at Factor Cost ($NNP_{FC}$).

• National income is the sum of earnings from a country's current production.
• There are 3 methods of calculating national income- income method, expenditure method, and production method.  
• Since, national income measures only the income earned by resources for their contribution towards the production process, it is calculated at factor cost and not the market price.
• It also includes net factor income from abroad (NFIA) because it measures the income of all residents of the country irrespective of whether or not production takes place within the domestic territory.
• We can calculate GDP from national income as: $GDP_{MP}$ = $NNP_{FC}$ + Depreciation - NFIA + Net Indirect taxes

Answer 2

National Income is often estimated as Net National Product at factor cost. (NNPfc)

Net National Product at factor cost (NNPfc) is the total of earnings received by various factors of production in terms of wages, net profits, interest etc by normal residents of a country during a given year after making allowance for depreciation.

The formula of NNPfc is

NNPfc = NDPfc + NFIA

Net Domestic Product at Factor Cost (NDPfc) constitutes are:-

• Compensation of Employees (COE):- Wages and salaries, basic pay, dearness allowances, sick leave allowances, leave travel concessions, bonus and commission. Compensation in Kinds like Free housing, free medical care, free or subsidized meals and free education for children. Employees contribute to social security like Provident fund, group insurance and retirement pension.
• Operating surplus(OS):- Rent, Royalty, interest, profit, dividend, retained earnings, corporate tax.
• Mixed-income(MI):- It is composed of labour income and capital income of those self-employed individuals who provide both labour and capital services in the production process. It includes the income of non-account workers and the income of corporate enterprises.

NDPfc = COE + OS + MI

National Income is estimated by adding all the factor incomes of Net Domestic Product at Factor(NDPfc) Cost to Net Factor Income from Abroad(NFIA).

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