MEANING AND DEFINITION OF NATIONAL INCOME
National income refers to the sum of income earned by all individuals of a nation in a particular period of time. In other words, it is the total income of the nation in a particular period of time. National income data reveal the total economic performance of the economy as a whole. Every society wants to know how well its economy is performing. National account statistics i.e., national income tells us about the health of an economy. National income represents receipts total, expenditure total, and the value of production. Since one man’s income is another man’s expenditure and each commodity is bought and sold at its market price, national income, national expenditure, and national product are equal.
Every nation’s economy produces goods and services. The sum of the market value of all goods and services produced by the economy of a nation in a year is called national income. Since the national income is the sum of income earned by all individuals of a country in a year, the following equation can be used to make clear about national income:
Where,
Y = Individual income
NI = National income
i = Individual from 1 to n.
Two things must be noted while studying the national income. First, it measures the market value of annual output. In other words, national income is a monetary measure. Secondly, for calculating national income accurately, all goods and services produced in any given year must be counted only once and not more than once.
There are four popular definitions of national income given by Marshall, Pigou, Fisher, and Kuznets.
MARSHALL’S DEFINITION
The labor and capital of a country acting upon its natural resources produce annually a certain net aggregate of commodities, material, and immaterial including services of all kinds. This is the net annual income or revenue of a country or the national dividend. – Marshall
Features
The main features of Marshall’s definition are as follow:
1. National income includes all types of goods and services whether they come to the market or not.
2. The word ‘net’ means that depreciation and wearing out of the machinery should be deducted from national income.
3. Income from abroad should be added to the national income.
PIGOU’S DEFINITION
National income is that part of the objective income of the community, including of course income derived from abroad which can be measured in money. – Pigou
Features
The main features of Pigou’s definition are as follows:
1. Only those goods and services should be included in national income, which is exchanged for money.
2. Income received on account of investment in foreign countries is to be included in national income.
3. Pigou’s definition is precise, convenient, and workable as compared to that given by Marshall.
FISHER’S DEFINITION
The national dividend or income consists solely of services as received by ultimate consumers, whether from their material or from their human environments. Thus, a piano or an overcoat made for me this year is not a part of this year’s income, but an addition to capital. Only the services rendered to me during this year by these things are income.” – Fisher
Fisher’s definition is considered better than that of Marshall and Pigou because it is near to the concept of economic welfare. Economic welfare depends upon the goods and services that are made available to people during a given time period.
Features
The main features of Fisher’s definition are as follows:
I. National income is the part of annual net product.
2. It focuses on human welfare.
3. National income is the value of services provided by capital goods.
4. National income is determined not by its annual production but by its annual consumption.
SIMON KUZNETS DEFINITION
National income is the net output of commodities and services following during the year from the country’s productive system in the hand of the ultimate consumers.” – Simon Kuznets
Features
The main features of Simon Kuznets definition are as follows:
1. National income is the net output.
2. It is measured in one year.
3. It includes only those goods and services which are consumed by ultimate consumers.
This definition includes goods and services only after completion of the buying-selling process.
