Difference Between GDP and National Income

Edited by Diffzy | Updated on: April 30, 2023

       

Difference Between GDP and National Income

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Introduction

Macroeconomics studies the concept of the economy as a whole. It deals with various agendas and measurements important for the budgetary and economic policies made in countries. Measurement is a crucial part of scientific study. Measurement of National income and growth and progress of a country involves various measurements and concepts. GDP and national income both parameters are both ways to measure the prosperity of a country. National income is the total value of all goods and services that are produced within a country, and the income that comes from abroad does it includes factor cost in itself. GDP is a domestic concept, whereas national income is a national concept.

GDP is defined as the value of goods and services generated within a country. GDP, moreover works as an indicator of a society's standard of living. It is not 100% accurate but gives only a rough idea as it restricts certain things and doesn't directly account for leisure, environmental qualities, externalities, and various other activities conducted outside the market arena.

The national income of a country means the complete value of all the goods and services earned during one financial year. It is the result of all the economic activities running within and also outside the countries includes net factor income too. National income measures the progress and growth of the countries within their front years as well as in their outside world.

Gross Domestic Product can be measured at market price as well as factor cost. It refers to the gross market value of all final goods and services produced within the domestic territory of a country for a period of 1 year. Gross here signifies that no provision has been made for depreciation. It includes depreciation in itself, whereas GDPfc signifies the value of a product calculated by the price buyers pay for the good and not by what the units receive. It also includes net indirect tax.

Common people usually misunderstand that NNPfc and NNPmp are both the same things, but the terms are completely different from each other. NNPmp is the sum total of factor incomes generated at the market price of the country. This is different from NNPfc, which is termed as national income.

GDP V/s National Income

Though GDP and National income are both the parameters to measure Nation's wealth and prosperity, both the aggregates are different from each other in many aspects. One of the four differences is that national income includes the total value of all services and goods that are produced within a country and also includes and come what comes from abroad for a particular period, normally one fiscal year, whereas GDP is confined to the domestic territory of the country. GDP is basically the local income of a nation, whereas national income determines the overall economic health of the country. It explains the economic growth as well as also tells about the contributions of various production sectors were the primary or tertiary in the economy. GDP is used to calculate the market value of all goods and services won on the political frontiers, whereas national income is the sum of GDP, GNP, and GNI.

GDP per capita is often considered an indicator of a country's standard of living though it doesn't account for personal income, whereas national income measures the monetary value of the flow of output of goods and services produced in the country's economy. GDP measures products only produced inside the country's borders, but national income also determines the income from the products produced abroad GDP deals with products under political boundaries, whereas national income takes into account the products and producers abroad. GDP includes gross n itself, which means that is no provision made for depreciation does it includes depreciation in itself, and national income excludes depreciation and focuses on net National product.

In a nutshell, GDP or gross domestic product deals with the market value of goods and services generated within a country, and national income is the total value of all the goods and services that are produced within a country and also from abroad during a particular fiscal year.

Difference Between GDP And National Income In Tabular Form

Parameters

Of comparison

Gross Domestic Product National Income
Definition It refers to the value of all the goods and services produced within the domestic boundaries of a country. It refers to the total amount of money earned by the Normal resident within Domestic boundaries and abroad.     
Determination It determines the local income of a nation. It is based on ownership and measures the overall output of the economy. The national income determines the overall economic health of the country and deals with overall economic concepts.     
Depreciation It includes the term Gross which means no provision has been made for depreciation and thus it includes depreciation. It does not include any form of depreciation.     
Arena It deals with the domestic market arena of a country. It deals with the domestic as well as abroad market.     
NFIA It does not include net factor income from abroad. It includes factor income from abroad.     

What Is Gross Domestic Product?

It refers to the monetary value of final goods and services produced within the country. It is a measure of the value created through the production of goods and services in a country during one physical year. It is one of the most important indicators to capture and understand the economic activity for stopping GDP, do not consider the worthy enough and maybe inappropriate of measuring the welfare index still plays an important role when it comes to measuring the quality of welfare of citizens.

Types of GDP

  • Nominal GDP: Nominal GDP refers to the total value of all goods and services produced at the current price during the current year and also includes all the changes in market price during the current year due to inflation or deflation.
  • Real GDP: Real GDP refers to the sum of all goods and services produced at constant prices full stop the price used based on the certain year or the previous year or base the year. This provides a more accurate account of economic growth.
  • Actual GDP: It is a real-time measurement of all output at any given period of time. And it shows the existing state of business of the economy without any fluctuation. Potential GDP is with the ID economy condition with 100% employment across all the sectors and involves study currency and stable product prices.
  • Potential GDP: It represents the economical production and growth of a nation and is one of the primary indicators used to determine the overall well being of a Country's economy.

Ways To Measure GDP

  • Product Method: this method includes all goods and services produced during the year in various industries termed as to add up together and these are termed as value-added to GDP.
  • Income Method: when it comes to GDP the sum of all the factories' incomes in GDP by revenue method is wages + salaries + rent + profit.
  • Expenditure Method: this approach focuses on products and services generated during one year within the region. GDP is usually subtracted from the portion of consumption investment and government expenditure. The GDP by expenditure method at market prices net export, which can be both ways, either positive or negative.

One way to determine how well a country's economy is flourishing is by its GDP growth rate but one of the major drops back is that the income generated in a country by foreign countries that are transferred back to foreign investors is not taken into account thus it hinders Nations prosperity and its BOP state.

What Is National Income?

In a crowd of words, National income defines National wealth. It shows the value of goods and services which are produced in any economy. It is the sum of the total value of all the goods and services produced by the resident of the country during one fiscal year abroad or within the country's boundary. Calculation of national income is very important as it indicates the overall health of the economy.

National income is important because it indicates the status of the economy and gives a clear picture of the country's economy, and help economist format policies for economic development.

National configures are an important tool For macroeconomic policy analysis. Its estimates are the most comprehensive measures of aggregate activities. Statistics is also an important tool for long in short-term economic planning full stop it allows us to have a clear idea about the structure of the economy and allows citizens to know about the contributions of various sectors towards the economy and also allows us to know about the inflationary and deflationary gap full-stop importance of national income can be interpreted by the as it is the basis of the budgetary policies formed in countries. Estimation of the nation's income is it needs very important due to the reasons mentioned above.

Methods To Measure National Income

  • Income Method: The income method is one of the most appropriate methods comes to the measurement of national income. National income is calculated by this method As it is no doubt a flow of income that involves land, labour capital, and enterprise. Labour is a campaign shared with wages and salaries money is being compensated with interest, land with rent, and entrepreneurship with profit will stop. Apart from all this, there is a concept of mixed-income that is the income of self-employed individuals.
  • Product Method: The second and most important method for the measurement of national income is the production method. National income can also be calculated using this method as a flow of goods and services. During the year, economists determine the monetary value of all final goods and services generated in an economy. The term final goods refer to the goods that can be directly put to use. Intermediate goods are not included as they have already been included in final goods and their inclusion will lead to double counting.
  • Expenditure Method: The expenditure method can also be used to find out national income. National income can also be calculated using this method as a flow of money as an expenditure. GDP is the total of all private consumption expenditures, government consumption expenditure, and gross capital formation and involves net export.

Main Difference Between GDP And National Income in Points

  • GDP talks about the market value of goods and services produced within the Domestic frontiers, whereas National income also includes income from abroad.
  • GDP is a domestic concept and is limited to the domestic boundaries, but national income is a broader concept
  • GDP includes depreciation, whereas National income does not include depreciation
  • GDP excludes NIAF, whereas it is one of the main part of National income.
  • GDP is measured at market price, whereas National income is calculated at factor cost.
  • GDP deals with Domestic producers, whereas National income deals with producers within the boundaries as well as outside.
  • GDP shows the local income of a country, whereas national income shows the overall income of a nation.
  • GDP also talks about the welfare index of a country though not an appropriate method, whereas National income deals with the overall prosperity and wealth of nation.

Conclusion

GDP and national income are the most important aggregates of macroeconomics. Both the parameters have their importance and place in making budgetary policies and the analysis of economic policies. In a nutshell, it can be concluded that GDP refers to the total value of goods and services that are produced within the political frontier of a country. In contrast, national income is a comparatively more comprehensive concept and deals with the goods and services produced within the political boundaries of a country as well as also involved net factor income From abroad. GDP is a Gross concept thus, it involves depreciation, but the net national product excludes depreciation as a provision regarding the same has already been made. National income shows the bigger picture of the economic agenda and the economic status of the country when it comes to overall development, but when we talk about the interior development of the economy of the country, GDP is the more appropriate concept to deal with as it also tells about the welfare of people up to an extent. GDP is a domestic concept, whereas national income is a national concept and deals with the overall national economic development, including net factor income abroad and net factor income from abroad. The inclusion of net factor income from abroad in national income and the inclusion of depreciation in GDP differs from. Though both aggregates are different, they allow economists to have a deep study of a nation's wealth and prosperity at the domestic and another at the national level.

References

  • https://brainly.in/question/338840#:~:text=Net%20National%20Product%20at%20the,by%20those%20factors%20of%20production
  • Class 12 macroeconomics by Sandeep Gag

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"Difference Between GDP and National Income." Diffzy.com, 2024. Tue. 09 Apr. 2024. <https://www.diffzy.com/article/difference-between-gdp-and-national-income-1170>.



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