Introduction

In this article you will learn about " National Income And Its Concepts" in easy language.National income is the total value of goods and services produced within the national boundaries of a country. National income is the factor income earned by the residents during an accounting year. It is the total monetary value of all goods and services that are produced by a nation during a period of time. It is the income earned by normal residents of the nation. 

Normal residents are those residents who reside in the domestic territory of the nation and those who carry out their economic activities in the domestic territories. 

The following are not regarded as normal residents :-

1 Foreign tourists and visitors are not included as normal residents. 

2 Foreign staff, embassies, officials, and members of armed forces of foreign residents. 

3 International organizations such as WHO, UN and WTO are treated as normal residents of international areas. 

4 Crew members of foreign vessels, and commercial travellers if they are located for less than one year. 

5 Border workers are considered normal residents of the country where they live and not of the country where they work. 


 The domestic territory doesn't include:- 

1 Foreign embassies, officials, and members of armed forces of foreign countries. 

2 International organizations such as WHO, UN, and WTO. 

 Methods Of Estimating National Income 

Three important methods for the calculation of national income are :- 
 

Value Addition Method

It is calculated as the difference between the value of output and the value of intermediate goods. Intermediate goods include those goods which are used for resale or utilized for further production in the same year. 

Components of the value addition methods are as follows:- 

1 value added : value of output - intermediate consumption 

2 value of output: sales + change in stock

3 change in stock : closing stock - opening stock 

Income Method

The income method measures national income from the side of payments made to the primary factors of production in the form of rent, wages, interest and profit for their productive services in an accounting year. 

Components of the income method are as follows :- 

1 compensation of employees which includes wages and salaries in cash and kind. 

2 Rent and Royalties

3 Interest

4 profits

5 Mixed income 

Expenditure Method

Income earned by the different factors of production is spent on purchasing goods and services. This total final expenditure if equal to the gross domestic product at market price. The expenditure method is also known as the income disposal method. 

The components of the expenditure method are as follows:- 

1 Private final consumption expenditure  

2 Government final consumption expenditure 

3 Gross Domestic capital formation or gross investment ( GDCF) 
There are two components of gross domestic capital formation. 
Gross fixed capital formation and inventory investment. 

4 Net Exports (X- M) : It is the difference between export and import . 


Conclusion 

In conclusion, National income is the total value of all the final services and goods produced in an economy during a specific period of time. It includes both the public and private sectors. It is an important indicator of economic growth and well being. It includes the incomes of all factors of production such as rent, wages, profits, and interest. It is important to understand about national income and about factors by which national income is calculated. National income is very important concept because it gives us idea that how economic activities was done.