National income aggregates

The essentials

Different measures of national income are obtained by adjusting three items: depreciation, net factor income from abroad (NFIA) and net indirect taxes (NIT).

• Gross vs net: Net = Gross − Depreciation.
• Domestic vs national: National = Domestic + NFIA. NFIA = factor income earned by residents from abroad − factor income paid to non-residents. Domestic product measures output within the economic territory; national product measures income of the country's normal residents.
• Market price vs factor cost: Factor cost = Market price − Net indirect taxes, where NIT = indirect taxes − subsidies.

Key points

• GDPmp = sum of final expenditure (C + I + G + X − M).
• GNPmp = GDPmp + NFIA.
• NDPmp = GDPmp − depreciation.
• NNPfc = National income = GDPmp − depreciation + NFIA − NIT.
• Basic prices: in Indian national accounts, GVA at basic prices = GVA at factor cost + production taxes − production subsidies; GDP = GVA at basic prices + product taxes − product subsidies.
• Real GDP is valued at base-year prices; nominal GDP at current prices.
• GDP deflator = (Nominal GDP ÷ Real GDP) × 100.

Exam tips

Write the formula first, then fill in numbers. When NFIA is negative (more paid abroad than received), national product is less than domestic product.

Common mistakes

• Subtracting subsidies instead of adding them back when moving from market price to factor cost (NIT already nets out subsidies).
• Using nominal GDP to compare output across years with inflation.