# Introduction to National Income

National Income (Y) is an the total level of activity of given economy in a particular period. In other words national income measures the total level of output of an economy in a given given period of time.”Y” is commonly used as the abbreviation for national income.

Normally The Gross National Product (GNP) is equals to national income and GNP is arrived from the formula mentioned below.

Gross National Product (GNP) = Gross Domestic Production (GDP) + Net Property/factor income from abroad

The terms used in the formula can be defined as follows:

Gross National Product (GNP)- This the level of the national income (Y) of an economy which can be defined as the total output of the economy within and outside the geographical boundaries of the county.

Gross Domestic Production (GDP) – This is the level of output produced with in geographical boundaries of an economy regardless of the nationality of owner of resources.

Net Property/factor income from abroad- This is the adjustment made for inflow/outflows of income due to local resources lated in foreign countries and foreign resource located in economy in concern. Net Property/factor income from abroad is calculated using the following formula.

where

Factor Income from Abroad is defined as the income received by the economy as the remittance for local factors of production located abroad. This could be of rent/wages/profits/interest payments. As an example if a USA company is situated in India, at the end of the period USA economy receives profits as from India which becomes an inflow to the USA economy.

Factor Income Paid to Abroad is defined as remittance to foriegn countries as result of using foriegn factors of production in production process. This could be of rent/wages/profits/interest payments. As an example if a USA company uses Indian Labour, at the end of the period USA economy has to pay wages to Indian Employees which will be remitted to Indian Economy and become an outflow from USA economy.

Gross National Product (GNP) = Gross Domestic Product (GDP) + Net factor income from abroad

Therefore,

Gross National Product (GNP) = Gross Domestic Product(GDP) + (Factor Income from Abroad – Factor Income Paid to Abroad)

GNP = GDP – (Factor Income from Abroad – Factor Income Paid to Abroad)

## 2 thoughts on “Introduction to National Income”

1. Daniel says:

great post, thanks for sharing

2. Osamuyi Okpame says:

I enjoyed reading your articles. They are easy to understand and comprehend, more than the lectures I take in class and better than some textbooks too. Please keep it up and keep writing. Thanks