<<–2/”>a href=”https://exam.pscnotes.com/5653-2/”>p>nuances of NATIONAL INCOME and GDP, comparing them, and addressing common questions.
Introduction
National income and Gross Domestic Product (GDP) are fundamental economic indicators used to measure a country’s economic performance. However, they are not interchangeable. While GDP focuses on the total value of goods and Services produced within a country’s borders, national income considers the income earned by its residents, both domestically and abroad.
Key Differences: National Income vs. GDP
| Feature | National Income (NI) | Gross Domestic Product (GDP) |
|---|---|---|
| Definition | Total income earned by a country’s residents, regardless of where it’s generated. | Total value of goods and services produced within a country’s borders. |
| Focus | Income generation and distribution. | Production and economic activity within geographical boundaries. |
| Calculation | NI = GDP + Net Factor Income from abroad (NFIA) | GDP = C + I + G + (X – M) |
| Components | Wages, profits, rent, interest, and NFIA. | Consumption, Investment, Government Spending, and Net Exports (Exports – Imports). |
| Usefulness | Understanding the standard of living and income distribution. | Assessing the overall size and Growth of the Economy. |
| Limitations | Doesn’t account for non-market activities and income inequality. | Doesn’t reflect income distribution or well-being. |
Advantages and Disadvantages
| Indicator | Advantages | Disadvantages |
|---|---|---|
| National Income | Reflects the actual income available to residents, useful for analyzing living standards and income distribution. | Excludes non-market activities (e.g., housework) and may not capture the informal economy. |
| GDP | Widely used and readily available indicator of economic growth and size. | Doesn’t account for income inequality, Environmental Degradation, or the well-being of citizens. |
Similarities
- Both are used to measure a country’s economic performance.
- Both are calculated on an annual basis.
- Both are influenced by factors like consumption, investment, and government spending.
FAQs
-
Which is a better indicator of economic well-being: NI or GDP?
There’s no single “better” indicator. NI provides insights into income distribution and living standards, while GDP reflects the overall economic activity within a country. Both should be considered for a comprehensive understanding. -
Can NI be higher than GDP?
Yes. If a country’s residents earn significant income from abroad, NI can exceed GDP. This is often the case for countries with large overseas investments. -
Does GDP include the value of Intermediate Goods?
No. GDP only includes the value of Final Goods and services to avoid double-counting. -
Why is GDP per capita used as a measure of living standards?
GDP per capita (GDP divided by Population) provides a rough estimate of the Average income available to each person in a country. -
What are the limitations of using GDP as the sole measure of progress?
GDP doesn’t account for factors like income inequality, environmental sustainability, leisure time, and overall well-being. It’s important to consider other indicators alongside GDP for a more holistic assessment of progress.
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