Alright buddy, this time we will discuss about Definition, Concepts, Benefits, and Calculation of National Income. Let’s just get into the discussion.
DEFINITION OF NATIONAL INCOME
National income is all income received by all members of the community or all family households (RTK) in a country within a certain period of time, usually within one year.
National income can also be interpreted as national production, which means the value of production produced by all members of the community of a country within a certain time, usually one year.
NATIONAL INCOME CONCEPT
1. Gross Domestic Product (GDP)
Gross domestic product (Gross Domestic Product) is the number of products in the form of goods and services produced by production units within the boundaries of a country or domestic territory for one year.
GDP = Public Income DN (domestic) + Foreign Income DN
In the calculation of GDP, this includes goods or services produced by foreign companies or related agencies, as long as the territory is still within the territory of a country or domestic. For example, company X from Japan, which has branches in Indonesia, the results in the form of goods and services are included in GDP. The goods produced include capital that has not been taken into account, so they are gross or/gross.
2. Gross National Product (GNP)
Gross National Product (Gross National Product) is the value of products in the form of goods and services produced by residents of a country (national) for one year, including those produced by citizens of that country produced abroad. For example, a man from Indonesia who sells clothes in Malaysia, the results in the form of goods and services are included in GNP.
GNP = Income of Domestic Citizen + Income of Foreign Citizens (overseas) – Foreign Domestic Income
3. Net National Product (NNP)
NNP = GNP – depreciation (depreciation of capital goods)
Depreciation is the replacement of capital goods for production equipment used in the production process which is generally an estimate, so that it can cause errors even though it is relatively small.
4. Net National Income (NNI)
Net National Income (Net National Income) is income calculated according to the amount of remuneration received by the community as the owner of the factors of production.
NNI = NNP – Indirect Tax
Indirect taxes are taxes whose burden can be transferred to other parties such as gift taxes, sales taxes, etc.
5. Individual Income (PI)
Personal income (Personal Income) is the amount of income received by everyone in society, including income earned without doing any activities. For example, the salary of a civil servant, as well as the income of entrepreneurs who are obtained in chains.
PI = NNI – Corporate Tax – Contribution – Retained Earnings + Transfer Payment
Transfer Payment are revenues that are not remuneration for production, but are taken from last year’s national income. Such as payment of pension funds, unemployment benefits, and so on.
6. Ready-to-spend income
Also known as Disposable Income namely income that is ready to be used to buy consumer goods and services and the rest becomes savings which is channeled into investment.
DI = PI – Direct Tax
Direct taxes are taxes whose burden cannot be transferred to other parties, such as income taxes.
NATIONAL INCOME BENEFITS
1. Assessing a country’s economic development over time
From here we can compare the role of a leader or economic driver of the nation, as well as to find out weaknesses or mistakes that have occurred from an economic perspective to be corrected in the future.
2. Assessing the economic performance of a nation
National income is a measure of the success and prosperity of a nation. Which becomes an award when the national income of a country is high.
3. Comparing the economy with other countries
In addition to looking for gaps to improve the economy of one’s own country, comparing the economy with other countries is also a matter of pride when the economy in your own country has a higher ranking.
4. Explain the structure of the country’s economy
The types of national income can be used as a benchmark to find out where the weaknesses of the economy need to be evaluated. It can also state the percentage of national income by type of income (income) and production (product)
5. Knowing economic growth and per capita income
The importance of evaluating the country’s economy so that the economy increases every year.
6. Can help formulate government policies
The importance of elements that carry out movements from below, to make the government aware of how important the economy of a country is. The public can have opinions, provide input to improve the quality of the economy.
NATIONAL INCOME CALCULATION
1. Production Method
National income is the sum of the entire value of goods and services produced by all economic sectors, both domestically and from abroad within a certain period.
Y = [(Q1 x P1) + (Q2 x P2) + (Qn x Pn) …]
2. Income Method
National income is the result of all receipts received by the owners of factors of production in a country during a period.
The formulas that can be used are:
Y = r + w + i + p
(rent, wage, interest, profit)
3. Expenditure Method
National income is the sum of all expenditures made by all economic households of a country for one year.
Y = C + I + G (X – M)
Alright buddy, this is the discussion this time about Definition, Concepts, Benefits, and Calculation of National Income, hopefully useful for all friends J