National Income: Definition, Concept and Benefits
National Income: Definition, Concept and Benefits - On this occasion About Knowledge will discuss about National Income. Which in this discussion explains the meaning of national income, concepts, approaches and benefits briefly and clearly. For more details, see the following article on national income.
National Income: Definition, Concept and Benefits
The definition of national income is the total income received by every member of society in a country in a certain period which is generally calculated within 1 year.
National income can be defined as the sum of the total national production produced by all members of society in a country in a certain period, usually within 1 year.
Judging from the explanation above, it is necessary to pay attention to 3 points, namely:
- An economy, this explains the population limit of a country;
- The total value of the final product (goods and services), means that the calculated value is the final value of the goods and services;
- There is a period, this explains the calculation limits for each period (generally within one year).
National Income Concept
National income can be known from several concepts, including:
Gross Domestic Product (GDP)
Gross Domestic Product (GDP) or Gross Domestic Product is the total amount of goods and services successfully produced by domestic or domestic economic units in 1 period, namely in one year.
GDP = PMDN (Domestic Community Income) + PADN (Domestic Foreign Income)
Goods and services produced by foreign business entities in the country are also included in the Gross Domestic Product (GDP). For example, a Japanese company, namely X, has a branch in Indonesia, so the results of its production are included in GDP.
Gross National Product (GNP)
Gross National Product (GNP) or Gross National Product is the total amount of products, either services or goods, which are produced by people in a country in a certain period, generally in 1 year. This production includes that produced by these citizens abroad, such as Indonesian entrepreneurs operating in other countries.
GNP = Income of Indonesian Citizens (Foreign Citizens) in the Country + Income of Indonesian Citizens (Foreign Citizens) Abroad – Income of Foreign Citizens in the Country
Net National Product (NNP)
Net National Product (NNP) or Net National Product is the total amount of Gross National Product minus the depreciation of capital goods. In this case, the depreciation is the replacement of capital goods for equipment used for production activities or activities. Generally in the form of an estimate, this can be a mistake even though it is relatively small.
NNP = GNP – depreciation of capital goods (depreciation)
Net National Income (NNI)
Net National Income (NNI) or Net National Income is income that is calculated based on the amount of remuneration received by the people who own the factors of production.
NNI = NNP – Indirect Taxes
Individual Income (PI)
Personal Income (PI) or individual income is the total amount of income earned by each person in society, including income earned without having to work. Such as civil servants who get pension money.
PI = NNI–Corporate Tax– Fees– Retained Earnings + Transfer Payment
Transfer Payments are all receipts that are not from production remuneration, but are taken from the previous year's national income. Such as unemployment benefits, pension funds, and others.
Spending Income (DI)
Disposable Income (DI) or Income Ready to Spend is income that has been deducted by direct taxes. So that it can be saved or spent in the form of investment.
DI = PI – Direct Tax
Direct tax is a tax that cannot be transferred to other parties, for example income tax.
National Income Calculation Approach
There are 3 approaches to calculating national income, namely:
Production Approach
The production approach can add value to the final production of each sector. For example, in a country there is an agricultural sector with the main product, namely rice.
For example the price of rice is Rp. 8,000 per kilo. The rice is sold to company X to be processed into other packages at a price of 10,000. The paddy that has been packaged is then sold to company Y at a price of 12,000 to be used as packaging/other products.
From this illustration, the national income is Rp. 12,000 which is the final value of the rice. This value is the same that will be obtained with the final amount of rice production.
Y = value (+) 1 + Value (+)2 + … + Value (+)N
Revenue Approach
The income approach can be calculated by adding up the total returns in the form of rent, interest, profit and wages.
Y = rent + interest + profit + wages
Expenditure approach
The expenditure approach can be calculated by adding up the total expenditure in the form of investment, government spending, consumption and the difference between exports minus imports.
Y = investment + government spending + consumption + (exports – imports)
Benefit of Calculation of National Income
This calculation of National Income certainly has benefits for a country. Below are the benefits of calculating National Income including the following:
- As a measure of the quality of life of a country's people;
- Can obtain information about the level of prosperity of a country;
- As a comparative measure of the performance of each country;
- Can assist in the process of evaluating economic performance within a certain scale;
- As an indicator and comparison of economic growth and also the wealth of a country;
- As a measure of comparison of the quality of a country's standard of living;
- Convenience in measuring economic changes in a country on a regular basis;
- As an indicator and comparison of the level of economic growth from time to time;
- Ease in comparing the economic performance of each sector.
Thus the explanation about National Income: Definition, Concept and Benefits, hopefully it can be useful and add to your insight.
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