Definition of National Income


Definition of National Income

1) National Income is that part of objective income of the community, including income derived from abroad, which can be measured in money” – Pigou.

2) National income may be defined as the money value of the flow of commodities and services (exc1udinc imports) reckoned at current prices minus the sum of following/items, at current prices.

  1. Money value of diminution in stocks

  2. Money value of goods and services used up in the course of production

  3. Money value of goods and services used to maintain intact existing capital equipments.

  4. Receipts from indirect taxation.

  5. Favorable balance of trade

  6. Net increase in the country’s foreign indebtedness.

In short, National Income is the aggregate factor income (i.e. earning of labour and property) which arises from the current production goods and services by the nation’s economy. Here nation’s economy refers to the factors of production Labour and property, supplied by the normal residents of the/ national territory. The national income has three interpretations

1) It represents a receipts total.
2) It represents expenditure total.
3) It represents a total value of production.

These three – fold interpretation arises out of fact that, every expenditure is at the same time a receipt and f goods and services purchased (bought) are valued at their sales prices. Thus

Value Received = Value paid = Value of goods & services

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