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National Income

A Concise Guide to National Income Concept

by Skills.Money
in Blog, Economy
Reading Time: 3 mins read
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National income is the sum of all payments which arise as a result of economic activity that is from the production of domestically owned goods and services.

The incomes which make up national income, includes  rent, employment income, interest, and profit, are known as factor incomes because the factors of production earn them:

  • Land earns rent.
  • Labor earns wages.
  • Capital earns interest.
  • Entrepreneurship makes a profit.

National Income is also called Net National Product.

  • Income and product are just two aspects of the same circular flow of income.
  • The term net means ‘after deducting an amount for capital consumption or depreciation of capital assets.

Gross Domestic Product (GDP)

Most of a country’s national income is derived from economic activity. Economic activity within that country is referred to as total domestic income or domestic product. It is measured gross, i.e., before deducting an amount for capital consumption or depreciation of capital assets. So, in India, for example, gross domestic product refers to the total value of income/production from economic activity within India. Therefore, GDP is the most appropriate measure for assessing the productivity of an economy.

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