Difference Between National Income and GDP

Difference Between National Income and GDP

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Rashmi
Rashmi Karan
Manager - Content
Updated on Dec 19, 2023 15:51 IST

National Income and Gross Domestic Product (GDP) are two important economic indicators often used to measure a country’s economic performance. Although they are related, the two concepts have some key differences. This article explains the key differences between National Income and Gross Domestic Product, two commonly used indicators of a country’s economic performance.

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Tabular Comparison – National Income vs GDP

 National income measures the total income generated within a country’s borders, while GDP measures the total value of all goods and services produced within the same borders.

National Income GDP
National Income is the sum of all incomes earned by the factors of production in a country’s economy. GDP is the total value of all goods and services produced within a country’s borders in a specific period, usually a year.
Includes wages and salaries earned by workers, profits earned by firms, and rent earned by landowners. It includes all final goods and services produced by households, firms, and the government.
National Income is calculated by subtracting depreciation (the loss of value of capital goods due to wear and tear) from GDP. GDP is calculated by adding consumption, investment, government spending, and net exports.
National Income is a macroeconomic indicator that measures the total monetary value of all goods and services within a country, GDP is a widely used indicator of a country’s economic health and is often used to compare economic performance across countries.
National Income measures income. GDP is a measure of production.
National Income tells us how much income was earned by the factors of production that produced that output. GDP tells us how much was produced within a country’s borders.

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What is National Income?

National income measures the total value of a country’s goods and services in a given period. This period is usually one year. It includes the income earned by individuals, businesses, and the government within a country’s borders. 

National income determines the country’s overall economic health, economic growth trends, various production sector contributions, future growth and standard of living. National income measures the economic growth of a country. 

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The general formula for calculating the national income is –

National Income formula = C + G + I + X + F – D

Where,

C = Consumption

G = Government expenditure

I = Investments

X = Net exports

F = Foreign production by national residents

D = Domestic production by non-national residents

It is an important economic indicator as it reflects the overall performance of a country’s economy. It also helps to compare economic growth between different countries.

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What is Gross Domestic Product (GDP)?

GDP is the market value of all final goods and services produced using the factors of production available within a country in a given period.

This economic indicator translates into the monetary value of goods. This includes products such as food, vehicles, machinery or textiles, and services such as health, education, etc. It does not matter if the public or private organizations that produce them are local or foreign. The requirement is that the final good or service is carried out in the country to be analyzed.

GDP formula  = C + G + I + NX 

Where, 

C =  Consumption 

G = Total government spending

I = Amount of business capital

NX = Net exports minus total imports

According to Statista, India's GDP is as follows

India GDP

 

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Key Takeaways 

  • National Income is the total value of all services and goods produced within a country and the income from abroad for a given period, usually a year.
  • GDP is the value of the goods and services produced within a country.
  • GDP, GNP, and GNI determine the national income. 
  • Factors like services and goods produced, exports, and government/private spending contribute to calculating GDP.
  • The GDP measures the overall economic output of a country. 
  • The GDP also determines the local income of a nation. 
  • The National Income determines the country’s overall economic health, trends in economic growth, the contribution of various production sectors, future growth and standard of living.

Conclusion

Both GDP and National Income help to estimate a country’s economic performance. They are calculated differently and provide different information. GDP measures production within a country’s borders, while National Income measures the income earned by factors of production within a country’s economy.


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FAQs

What is the main difference between National Income and GDP?

One key difference between GDP and National Income is that GDP includes all final goods and services produced within a country's borders, regardless of who produces them. In contrast, national income only includes incomes earned by production within the country, regardless of where production occurs.

Does National Income include indirect taxes and depreciation as GDP does?

National Income does not include indirect taxes and depreciation, while GDP does.

How is National Income calculated compared to GDP?

National Income is calculated by adding all the income the country's residents and businesses earn. In contrast, GDP is calculated by adding the value of all goods and services produced in the country.

Does GDP consider income generated by foreign residents and businesses in the country?

GDP only includes goods and services produced within the country's borders, regardless of whether domestic or foreign factors of production produced them.

Why is it important to understand the difference between National Income and GDP?

Understanding the difference between National Income and GDP is important for policymakers and economists to properly assess a country's economic performance and make informed decisions.

Can a country have a high GDP but a low National Income?

A country can have a high GDP but low National Income if foreign residents and businesses earn a significant portion of the income generated within the country's borders.

Which method of calculating GDP (production, income, or expenditure) is used to calculate National Income?

The income approach to calculating GDP is used to calculate National Income.

About the Author
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Rashmi Karan
Manager - Content

Rashmi is a postgraduate in Biotechnology with a flair for research-oriented work and has an experience of over 13 years in content creation and social media handling. She has a diversified writing portfolio and aim... Read Full Bio