National income of a country means the sum total of incomes earned by the citizens of that country during a given period, over a year.
National income accounting refers to the set of methods and principles that are used by the government for measuring production and income, or in other words economic activity of a country in a given time period.
The various measures of determining national income are GDP (Gross Domestic Product), GNP (Gross National Product), and NNP (Net National Product) along with other measures such as personal income and disposable income.
It should be noted that national income is not the sum of all incomes earned by all citizens, but only those incomes which accrue due to participation in the production process.
Individuals participate in the production process by supplying factors of production which they possess.
According to Marshall: “The labour 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 is the true net annual income or revenue of the country or national dividend.” In this definition, the word ‘net’ refers to deductions from the gross national income in respect of depreciation and wearing out of machines. And to this, must be added income from abroad.
National income accounting equation is an equation that shows the relationship between income and expense of an economy and other categories. It is represented by the following equation:
Y = C + I + G + (X – M)
Y = National income
C = Personal consumption expenditure
I = Private investment
G = Government spending
X = Net exports
M = Imports
The most important metrics that are determined by national income accounting are GDP, GNP, NNP, disposable income, and personal income. Let us know more about these concepts briefly in the following lines.