National income concepts are of different types. They are 1. Gross National Product. 2. Net National Product. 3. Personal Income. 4. National income at factor costs. 5. Disposable personal income.
Out of these different concepts of national income, here the first two concepts are explained as follows:
Gross National Product (GNP) : Gross National Product is the money value of the total national production for any given period. It obtained by multiplying total output or goods and services of a nation with their corresponding market prices. It includes an the economic activities and output organized in different spheres of an economy during a year. Certain precautions have to be taken for calculating gross national product of a country. Double counting of goods and services should be avoided. For this only finished goods should be taken into account. Intermediate and semi-finished goods should be excluded from counting.
The money valued at currently produced goods and services should be taken into consideration. The expenses incurred on depreciation and replacement should also be excluded. The net revenue receipts from foreign trade should be included. Gross National product is explained from different angles.
Gross National Product =Goods and services utilized by government + goods and services bought by consumers + Private capital formation.
Gross National Product =Total output of government + Total output of private sector.
Gross National Product = Consumption goods + investment goods + increase or decrease in inventories.
Gross National Product denotes the total output capacity and employment potentials of a country. It acts as the index of economic development of a country. It also indicates the changes in inventories.
Net National Product (N.N.P.) : Net National Product refers to the net production of goods and services. It is obtained by deducting the value of capital consumed or depreciated from the Gross National Product. It is a highly useful concept in the study of Growth Economics. It shows how much amount of capital is necessary for preserving the national investment against depreciation and replacement of machinery, plants, buildings etc. It also shows the actual level of output of a country during a year. Hence net national product is a valuable concept for calculating the real national income of a country.
N.N.P. = G.N:P. — Depreciation.