Introduction to concepts of National Income

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“This video. Let s learn about the measures of national income. This video is brought brought to you by online to is let s look at the contents. The measures national income our gross domestic product gross national product net national product net national product at factor cost personal income and disposable personal income.

Let s look at each of this topic. One by one. So that we can understand it more clearly. The first topic gross domestic product.

Now gross domestic product is nothing. But the total value of goods and services produced within the boundaries of a country during a given period of time. Which is usually a year. We can remember this by associating.

The word domestic with within the boundaries of a country gross domestic product will include the produce of both the residents of the country as well as the foreign nationals. Let s look at the formula for gdp the formula for gdp is c g. I nx now what exactly is c g. I and nx c the first two consumption consumption of the people how much are they spending while consuming the products of the country g is nothing.

But the government spending. I refers to investments investments made on the fixed assets like buildings or different machinery. Nx would refer to nothing but net exports status exports imports. The second topic which we learn is gross national product gross national product is the total value of goods and services produced by the nationals of the country during a given period of time this itself will show you the difference between gross domestic product and gross national product gross national product will include only the value of goods and services that are produced by the nationals of the country so it does not include the income that is generated by foreign nationals.

Who decide within the premises of the country gnp can be equated in formula by saying g..


And p. Is equal to gdp plus x. Minus m. Which is nothing.

But exports. Which can be referred by inward remittances of a country from nationals. Who are residing abroad and the outward resident remittances of a country from foreign nationals. Who are living within the country.

The third topic that we learn is net national product net national product is associated in the form of an equation. Where it is gnp that is gross national product minus. Depreciation depreciation is nothing. But the wear and tear of goods produced okay let s understand depreciation in in depth.

If you buy a particular machinery. It the value of the machinery decreases over a period of time that decrease or in the value of the machinery is nothing. But depreciation so you are reducing depreciation from the gross national product. And why do you do that because depreciation doesn t really add value to gnp so this is this is why depreciation is reduced from gross national product.

The fourth concept that we see is net national product as factor cost. This is a little self explanatory. If you look at the factor. Cost what net national product.

According..


To this is calculated on the basis of the cost that is incurred to produce the goods and services. So net national product is nothing. But the cost that is incurred to produce the goods and services. The cost is the payment that is made for the factors of production factors of production as you all know are nothing but line labor capital entrepreneurship net national product at factor cost is equal to net national product at market price.

Indirect taxes the subsidy. Let s look at this equation in more detail. So. According to this equation.

We are trying to understand net national product on the basis of the cost that is incurred. So we look at net national product at the market price already seen before and we deduct indirect taxes because it is it does not it should not add any cost to produce the goods and services and we add the subsidies that is given by the government because it does increase the cost of producing the goods and services. Let s look at personal income now personal income is the sum of all income. That is received by all the people of the country in one year.

Some of the income that are received by the nationals in the country is not really you know calculated in the national income is a so equation. So that s why personal income is equal to national income plus net transfer payments that would include other monetary income which is not included at the national income equation now net transfer payments is equal to transfer payments minus undistributed profits of corporates plus payment for social security provisions. Let s look at each of them in depth undistributed profits of corporates you all know corporates big mn c s or other or corporations businesses they make profits every year. Some of those profits are not distributed to the shareholders shareholders are nothing.

But the people who actually own the company. These profits are retained by the company for expansion or other use so it s deducted from the transfer payments and payments for social security provisions payments for social security provision is the provident fund or other payments that are made to the government and transfer payments are the payments that are made by the government to us for an activity. Which does not really add value like payment for unemployed and or payment made to citizens who have retired such kind of payments will be associated and transfer payments. Disposable personal income is the last topic disposable personal income means the income that is available to individuals that can be disposed at their will so we understood income a person gets money now after getting money.

It is not up to the person to use the entire money and why is it so the curse..


The direct taxes. Which are paid by the government to them by the person to the government. It s not at the will of the person to spend so that is deducted. So disposable personal income is nothing but personal income direct taxes the taxes.

Which are paid out by the person let s look at each of this topic in the end. So that we can understand it in a more crisp way gdp gdp is nothing but c g. I nx the membrane it is consumption expenditure government spending investments and net exports. Gnp gross national product.

Is nothing. But gross domestic product. Plus. X.

Minus m. Now. What exactly is x. Minus m.

X. Is the inward remittances that are made by nationals of the country that are abroad and m are the outward expenses remittances that are made by foreign nationals. Who reside within the country nmp net national product is gross national product depreciation. We deduct depreciation.

Because it doesn t really add value net national product at factor cost is net national product..


Indirect. Taxes plus subsidies. We are doing this because we want to find out net national product for the cost of production and not the net national product at market price. So.

That s why we deduct. Indirect. Taxes and the i sub c. This in order to know the cost.

That is associated with producing the goods and services personal income personal income is the actual income which goes to the person and some of the income is not really calculated in the national income or equation. So we add net transfer payments. Which may not be added in the which which is not added in the national income equation net transfer payments is transfer payments undistributed profits of corporates plus payment for social security provisions. The large topic that we see is disposable personal income.

Which is nothing but personal income direct taxes because direct taxes are not really with the person to spend so we see the third disposable personal income. Which is actually with the person at his own will so that he can spend whenever he want okay i hope. This video is helpful for you and you learned a lot from it please leave your comments below and thanks for watching. ” .

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