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What Is The National Income? – Definition, Types, And More

National income or national income is understood to be the economic of the set of all the productive forces of a given nation over a stipulated time (usually one year). However, Intermediate goods and services that have been necessary to produce it must be discounted. That is, it consists of the total of what is produced by that country.

Therefore, It is a valuable economic magnitude to evaluate the results of some financial process, similar in that sense to the Gross Domestic Product (GDP) and the Gross National Product (GNP).

It offers crucial information on the productive structure of the country and its particular economic dynamics.

Besides, it can be compared to the total amount spent, since countries, just like companies, are interested in knowing how their operations are going.

National income is of interest to the macroeconomy since it is the economic perspective of nations (and not individuals or consumers). This concept is equivalent to that of Net National Product (PNN).

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Because it is essential?

National income is made up of all federal revenue, and therefore allows measuring the country’s economic performance, which is crucial in the design of financial strategies.

For example, let us find out:

  • If the economy grows or decreases.
  • To what extent each of the various sectors of the country contributes to the economy.
  • Therefore, How the income distributed in the country.

Types of national income

The following types of national income are distinguished, depending on their particular considerations:

  • Gross national income (GNI).However, A gross sum of all the remuneration generated by the productive forces in a time, without making any deductions.
  • Net national income (RNN). It is also the sum of the product of the country’s labor forces, but after having subtracted the depreciation.

Components of the nation’s income

The national income of a country made up of.

  • Gross domestic product (GDP).  Estimation of national wealth for all its goods and services.
  • The national budget.  What the amount of money projected by national planning to cover the country’s administrative expenses
  • The gross national product. Sum of all the final values ​​of goods and also, services of the country in a year.
  • Gross investments. That is money from the private sector.
  • Public expenditure. That is the expense of government works.

National income accounting

National income accounting throughout the year carried out using two methodologies, each contemplating a different key factor:

  • The expense. Everything that bought summarize: Adding the values ​​paid to employees, capitalists, workers, etc., of the country in a give period.
  • The rent .Everything that been won summarize: adding the value of all goods and services produce in the country.

National income formulas

The usual formula to calculate the national income is:

RN = GDP – Income paid to non-residents + Income obtained abroad

On the other hand, to calculate the National Income from GDP, the formula is:

RN = RA + ENE + = GDP PM – (Ti – Sub) – D + RRN – RRE = PNN CF

Where:

  • RN is the NI
  • RA is the compensation to employees or income from work.
  • ENE is the net operating surplus (rents, interests, and profits).
  • RRN is the income of nationals residing in other countries.
  • RRE is the income of foreigners residing in the country.
  • D is the appreciation of productive capital in the country.
  • Ti is indirect taxes.
  • Sub is business grants.

Economic agents of the national income

The agents that determine the economic activity of a country are:

  • Families and individuals. They decide what to consume and use their work capacity, land, or capital to generate wealth.
  • The companies. In charge of creating and distributing goods and services based on the perceived needs of the families.
  • The public sector. The set of State companies and institutions that intervene in the economy through the design of laws and economic policies, the redistribution of national, or solidarity (more economical) competition for social benefit.

How is the national income used?

The national income of a country generally used for investment or savings.

  • InvestmentWhen goods or inputs bought that later feed the [national income] productive apparatus, keeping the practical circuit in motion. Assets those that satisfy the needs of economic agents.
  •  The capital not invested generally saved. It entered into the bank and also, used as an investment, generating new dividends (in part) or serving as support for public spending.

Equilibrium national income

With this term, we refer to a sustained level of production in equilibrium between and expenses. It is due to a balance and correlation between the country’s productive forces (supply and demand ), which allow the continuous flow of [national income].

Thus a circular dynamic achieved, which feeds off and maintains all active sectors. A very dramatic imbalance between these factors leads to a loss of equilibrium and an increase in entropy in the economic system.

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Countries with higher national income

The World Bank calls “high-countries” those with a per capita gross [national income]  of US $ 12,236 per year (calculated using the Atlas method).

It one of the criteria used to distinguish between ” developed ” and ” underdeveloped ” or ” developing ” countries. However, countries with high economic levels and shallow human development index are not a criterion but purely economic.

However, The countries with the highest national in 2017 were, according to the International Monetary Fund:

  • Qatar (GDP of US $ 129,512).
  • Luxembourg (GDP of US $ 100,991)
  • Macao (GDP of US $ 87,845)
  • Singapore (GDP US $ 86,854

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