Difference Between National Income and GDP

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.

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.

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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.

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

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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