ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

National Income and Its Determination

Updated on April 8, 2018

National Income:

1. Classical definition

2. Modern definition

Classical definitions:

A. National income is the total sum of goods physically produces in a country if measured in money. (G. Crowther)

B. the labor and capital of a country acting on its natural resources produce annually a certain net aggregate of commodities material and immaterial including services of all kinds. This the true net national income or revenue of the country or National dividend. (Marshall)

i) In this definition, NET refers to the residual amount after deducting depreciation from gross.

ii) Income received from abroad should also be included in it.

c. National income is the part of the objective income of the country, including of course income derived from abroad which can be measured in money. (Pigou)


1. In the modern times, a long range of goods and services are produced which can’t be known easily.

2. There is always a possibility of double counting.

3. Measurement of all goods produced in money is not possible.

4. The definitions can be made applicable in developed economies only where goods and services are purchased by money.

All of the above definitions made the production as the base for defining National income.

Modern definition:

The National income or dividend consists solely of services as received by ultimate consumers. Whether from their material or from the human environments. Thus piano or overcoat made for me this year is not the part of this year’s income but an addition to the capital. Only the services rendered to me during this year by these things are the income. (Regner Fisher)

This definition is better because of it:

a. Extends the concept of economic welfare.

b. make consumption as base

c. consumption determines the living standards.


1. Estimation of net income is possible but not of net consumption.

2. It is not necessary that the durable goods like piano and coat are exhausted completely in a year.

3. Durable goods are bought and sold, therefore, their ownership and value is changed.

4. Goods are also sold in black market so differentiation between real value and value of the black market is very different.

“National Income is somewhere between GNP and NNP. GNP (user cost; reduction in the value of capital equipment’s actually used and not fully depreciated”) (L. J.M. Keynes)

Different Concepts of National income


Measurement of national income:

There are 3 methods used for computing the national income:

1- National income at Market Price Method:

  • Division of economy into sectors (agricultural and industrial).
  • Estimation of goods and services produced in both the sectors.
  • Conversion of goods and services into value on the basis of market price.
  • The value of the good is to be added with the goods and services with the services
  • For estimation, the net value, investment of preceding year is to be deducted.
  • When the goods and services produced and rendered is converted into value, it becomes income.

2. National Income at Factors cost Method:

  • Find out the income of people working in different sectors of the economy.
  • Every individual works and earns his/her income in the capacity of landlord or laborer or capitalist (investor) or entrepreneur.
  • They earn as rent, wage, interest or profits.
  • By adding all annual incomes together, we get GNI.
  • For finding out the NNI, direct tax (non-disposable income) is to be deducted

3. National Income at National Consumption:

  • Since the expenditure of one is the income of other, therefore, according to this method, national consumption is computed rather the national income.
  • As no individual can consume more than his income, no nation can consume more than its income so national income should be equal to national consumption.
  • By adding direct and indirect tax, we get gross national consumption or gross national income.
  • For calculating NNI, depreciation cost is deducted from GNI.


Difficulties in Measurement of National income:

  1. Lack of statistical information
  2. Untrained staff in the statistical office.
  3. Illiteracy of the masses.
  4. The existence of non-monetized sector.
  5. Unpaid services.
  6. Society of pomp and show.
  7. Non-documented transactions.
  8. The existence of foreign firms in the country.
  9. Double job (farmers and laborers, after their main job, also work part-time).

Circular flow Of Income:

  • There are two sectors( household and firms)
  • Firms are held responsible to produce goods and services.
  • Factors of production are required for producing goods and services.
  • Income of all these factors, in this manner, is created.
  • The market value of net production should be equal to the payments pad to the factors as rent, wages, interest, and profits.
  • These incomes are converted into the channels of consumption.
  • The flow of income, in this manner, directs from firms towards households for purchasing goods and services.
  • While the flow of production towards households takes place when they buy goods and services.
  • This is the reason that National Income is computed in 3 methods.



    0 of 8192 characters used
    Post Comment

    No comments yet.


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)