National Income and Related Aggregates

Last Updated : 06 Apr, 2023

National Income is the aggregate value of all goods and services produced by
firms in a given financial year. It can be stated that when the aggregate revenue
generated by the firms is paid out to factors of production, it equals aggregate
income or National Income. There are different variants or aggregates of National
Income and each of the aggregates has a specific meaning, use, and method of
measurement. These aggregates are as follows:

1. Gross Domestic Product at Market Price (GDPMP)

2. Gross Domestic Product at Factor Cost (GDPFC)
3. Net Domestic Product at Market Price (NDPMP)
4. Net Domestic Product at Factor Cost (NDPFC)
5. Gross National Product at Market Price (GNPMP)
6. Gross National Product at Factor Cost (GNPFC)
7. Net National Product at Market Price (NNPMP)
8. Net National Product at Factor Cost (NNPFC)

Basic Aggregates of National Income

A number of goods and services are produced in a year by different production
units within an economy. It is not possible to add those goods and services in
terms of their quantity; therefore, these are added in terms of money. There are
eight aggregates in National Income for measuring the value of goods and
services in terms of money. These are as follows:

1. Gross Domestic Product at Market Price (GDPMP)

GDPMP refers to the gross market value of all the final goods and services
produced during a year within the domestic territory of a country.

Gross in GDPMP means that the total value of final goods and services includes
depreciation, i.e., no provision has been made for it.
Domestic in GDPMP means that the final goods and services produced are
located within the domestic boundaries of the country.

Product in GDPMP indicates that only final goods and services are included.

Market Price in GDPMP means that the amount of indirect taxes paid is included
in GDP; however, the subsidies are excluded from it.

The rest of the aggregates are determined by making some adjustments in

GDPMP.

2. Gross Domestic Product at Factor Cost (GDPFC)

GDPFC refers to the gross money value of all the final goods and services
produced during a year within the domestic territory of a country. It can be
determined as:

GDPFC = GDPMP – Net Indirect Taxes

3. Net Domestic Product at Market Price (NDPMP)

NDPMP refers to the net market value of all the final goods and services produced
during a year within the domestic territory of a country. It can be determined as:

NDPMP = GDPMP – Depreciation

4. Net Domestic Product at Factor Cost (NDPFC)

NDPFC refers to the net money value of all the final goods and services produced
during a year within the domestic territory of a country. It can be determined as:

NDPFC = GDPMP – Net Indirect Taxes – Depreciation

NDPFC is also known as Domestic Factor Income or Domestic Income.

Relationship between the four Domestic Aggregates (GDPMP GDPFC NDPMP and
NDPFC)
Domestic in each of these aggregates states that the contribution of only
those producers whether they are resident or non-resident will be included
who are producing within the domestic territory of the country.

5. Gross National Product at Market Price (GNPMP)

GNPMP refers to the gross market value of all the final goods and services
produced during a year by the normal residents of a country. It can be determined
as:

GNPMP = GDPMP + Net Factor Income from Abroad

GNPMP of a country can be less than its GDPMP if NFIA is negative. However, it
can be more than GDPMP if NFIA is positive.

6. Gross National Product at Factor Cost (GNPFC)

GNPFC refers to the gross money value of all the final goods and services
produced during a year by the normal residents of a country. It can be determined
as:

GNPFC = GNPMP – Net Indirect Taxes

7. Net National Product at Market Price (NNPMP)

NNPMP refers to the net market value of all the final goods and services produced
during a year by the normal residents of a country. It can be determined as:
 NNPMP = GNPMP – Depreciation

8. Net National Product at Factor Cost (NNPFC)

NNPFC refers to the net money value of all the final goods and services produced
during a year by the normal residents of a country. It can be determined as:

NNPFC = GNPMP – Net Indirect Taxes – Depreciation

NNPFC is also known as National Income.

Relationship between the four Domestic Aggregates (GNPMP GNPFC NNPMP and
NNPFC)
National in each of these aggregates states that the contribution of only
those producers who are normal residents of a country will be included. It
does not matter if the production is being held outside the domestic
territory of the country.

Domestic Income (NDPFC) v/s National Income (NNPFC)

Basis Domestic Income National Income

Meaning It refers to the net money value of It refers to the net money
all the final goods and services value of all the final goods
 Basis Domestic Income National Income

produced during a year within the and services produced during

domestic territory of a country. a year by the normal
residents of a country.

Domestic Income is a territorial National Income is a national

concept. It includes the value of concept. It includes the value
Nature of
all the final goods and services of all the final goods and
Concept
produced within the domestic services produced in the
territory of a country. whole world.

All producers within the domestic All producers who are normal
Category of
territory of the country are residents of the country are
Producers
included in Domestic Income. included in National Income.

Domestic Income does not National Income includes

NFIA
include NFIA. NFIA.

Gross Domestic Product at Market Price (GDPMP) v/s

National Income
 Basis Gross Domestic Product at National Income (NNPFC)
Market Price (GDPMP)

It refers to the gross market It refers to the net money

value of all the final goods and value of all the final goods
Meaning services produced during a year and services produced during
within the domestic territory of a year by the normal
a country. residents of a country.

GDPMP is a territorial concept. National Income is a national

It includes the value of all the concept. It includes the value
Nature of
final goods and services of all the final goods and
Concept
produced within the domestic services produced in the
territory of a country. whole world.

All producers within the All producers who are normal

Category of
domestic territory of the residents of the country are
Producers
country are included in GDPMP. included in National Income.

GDPMP is at market price; National Income is at factor

Net Indirect
therefore, net indirect taxes are cost; therefore, net indirect
Taxes
included. taxes are excluded.

Depreciation is included in Depreciation is not included

Depreciation
GDPMP in National Income.

Steps to Calculate Practicals of Basic Aggregates of

National Income
There are eight basic aggregates of National Income among which four are of
Domestic Concept (GDPMP GDPFC NDPMP and NDPFC) and four are of National
Concept (GNPMP GNPFC NNPMP and NNPFC). To determine the National Income
of a country, it is required to first calculate one of the basic aggregates of national
income out of the rest of the seven. To better understand, let us take an example
where we have to determine NDPMP from GNPFC.
Step 1:
Prepare an equation by placing the aggregate to be determined on the left side
of the equal-to sign and the aggregate given on the right side.
For example, NDPMP = GNPFC ± Adjustments.
Step 2:
Identify the Adjustments required and then calculate the answer.

In the above example, as we have to determine NDPMP from GNPFC, there are
three adjustments required.

1. G in GNPFC refers to Gross. It means that it includes Depreciation. Therefore,

depreciation will be subtracted from GNPFC to arrive NNPFC
2. N in GNPFC refers to National. It means that it includes Net Factor Income from
Abroad (NFIA). Therefore, NFIA will be subtracted from NNPFC to arrive NDPFC
3. FC in GNPFC refers to Factor Cost. It means that it does not include Net Indirect
Taxes (NIT). Therefore, NIT will be added to NDPFC to arrive NDPMP

Hence, the final equation to determine NDPMP will become NDPMP = GNPFC –
Depreciation – NFIA + NIT.

Example 1:
Calculate National Income or NNP at FC.

Particulars ₹ in crores

GNP at MP 7,000

Subsidies 400

Net Factor Income from Abroad 300

Depreciation 100

Indirect Tax 500

Solution:
NNP at FC = GNP at MP – Depreciation – NIT (Indirect Taxes – Subsidies)

= 7,000 – 100 – (500-400)

 = ₹6,800 crores

Note: We will not adjust NFIA as there is national value in both NNP at FC
and GNP at MP.
Example 2:
Calculate NNP at FC.

Particulars ₹ in crores

GDP at MP 6,500

Goods and Services Tax (GST) 500

Factor Income from Abroad 260

Factor Income to Abroad 400

Subsidies 110

Consumption of Fixed Capital 150

Solution:
NNP at FC = GDP at MP – Consumption of Fixed Capital + NFIA (Factor
Income from Abroad – Factor Income to Abroad) – NIT (Goods and
AccountancyServices
BusinessTax – Subsidies)
Studies Economics Organisational Behaviour Human Resource Management Entrepreneurs
= 6,500 – 150 + (260 – 400) – (500 – 110)

= ₹5,820 crores
Example 3:
Calculate Factor Income from Abroad.
 Particulars ₹ in crores

GNP at MP 7,000

Indirect Taxes 500

Replacement of Fixed Capital 150

Factor Income to Abroad 270

Subsidies 50

NDP at FC 4,600

Solution:
GNP at MP = NDP at FC + Replacement of Fixed Capital + NFIA (Factor
Income from Abroad – Factor Income to Abroad) + NIT (Indirect Taxes –
Subsidies)

Therefore,

Factor Income from Abroad = GNP at MP – NDP at FC – Replacement of

Fixed Capital + Factor Income to Abroad – NIT (Indirect Taxes –
Subsidies)

= 7,000 – 4,600 -150 + 270 – (500 – 50)

= ₹2,070 crores

Note: Replacement of Fixed Capital is another name for Depreciation.

Example 4:
Calculate:

i) Indirect Tax

ii) Depreciation

iii) Domestic Income or NDP at FC

 Particulars ₹ in crores

GNP at FC 80,000

Subsidies 15,000

GNP at MP 1,00,000

National Income or NNP at FC 75,000

GDP at MP 1,10,000

Solution:
i) GNP at FC = GNP at MP – NIT (Indirect Tax – Subsidies)

Indirect Tax = GNP at MP + Subsidies – GNP at FC

= 1,00,000 + 15,000 – 80,000

= ₹35,000 crores

ii) NNP at FC = GNP at FC – Depreciation

Depreciation = GNP at FC – NNP at FC

= 80,000 – 75,000

= ₹5,000 crores

iii) Domestic Income or NDP at FC = GDP at MP – Depreciation – NIT

(Indirect Tax – Subsidies)

= 1,10,000 – 5,000 – (35,000 –

15,000)

= ₹85,000 crores
Example 5:
The Net Domestic Product at Factor Cost of an economy is ₹5,000 crores.
Its capital stock is worth ₹3,000 crores and it depreciates @20% per
annum. The Subsidies, Indirect Taxes, Factor Income to the rest of the
world, and Factor Income from the rest of the world are ₹70 crores, ₹150
crores, ₹400 crores, and ₹400 crores respectively. Find out the Gross
National Product at Market Price.
Solution:
 Gross National Product at Market Price = Net Domestic Product at FC +
Depreciation + Net Indirect Taxes (Indirect Taxes – Subsidies) + Net
Factor Income from Abroad (Factor Income from the rest of the world –
Factor Income to the rest of the world)

= 5,000 + 20% of 3,000 + (150 –

70) + (400 – 400)

= 5,000 + 600 + 80 + 0

= ₹5,680 crores

Quick Revision:

Net Indirect Taxes = Market Price – Factor Cost

Depreciation = Gross Value – Net Value

Net Factor Income from Abroad = National Value – Domestic Value

GDPFC = GDPMP – Net Indirect Taxes

NDPMP = GDPMP – Depreciation

Domestic Income or NDPFC = GDPMP – Depreciation – Net

Indirect Taxes

GNPMP = GDPMP + Net Factor Income

from Abroad

GNPFC = GNPMP – Net Indirect taxes

NNPMP = GNPMP – Depreciation

National Income or NNPFC = GNPMP – Depreciation – Net

Indirect Taxes

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