National income and some related aggregates are being provided in a way easy to understand covering the following topics: 1. Transfer Income and Factor Income 2. Normal Residents and Non-residents 3. Domestic Territory 4. Domestic Income and National Income 5. Market Price and Factor Cost 6. Nominal GDP and Real GDP 7. GDP Deflator Thank you.

1. NATIONAL INCOME AND
RELATED AGGREGATES

2. Topics to be covered:
o Concept of transfer income and factor income
o Concept of normal residents and non-residents
o Domestic territory of a country
o Concept of domestic income and national income
o Concept of GDP and Net Domestic Product
o Concept of Market Price and Factor Cost
o Concept of Nominal GDP and Real GDP
o GDP Deflator

3. TRANSFER INCOME AND FACTOR
INCOME
FACTOR INCOME
• It’s received for rendering or
doing any productive activity.
• It’s bilateral in nature (two
parties are involved).
• It’s included in national
income.
• Examples: Rent, Salaries, etc.
TRANSFER INCOME
• It’s received without doing or
rendering any productive
activity.
• It’s unilateral in nature (one
party is involved).
• It’s not included in national
income.
• Examples: Charity, Gifts, etc.

4. NORMAL RESIDENT OF A
COUNTRY
A normal resident is said to be a person, firm, company,
organization, etc. who ordinarily resides in a country and
whose center of economic interests lies in that country.
Ordinarily resides: When the person is living in the
domestic territory of the country for more than one year.
Center of economic interests: When the person carries
out the basic economic activities of production,
consumption and investment in that country.

5. NON-RESIDENT OF A COUNTRY
The following institutions or people are not treated as normal
residents of a country in which they are living as they do not
fulfill the criterion of center of economic interests:
 Other country’s people working in International organizations like
WTO, WHO, UNO, IMF at that country.
 Tourists and foreign visitors visiting the country for a holiday,
medical treatment, studies, etc.
 Crew of foreign ships, vessels , aircrafts, etc.
 Foreign staff of embassies, members of foreign military
establishment in the country.
 Workers coming from neighbor country crossing the border
regularly.

6. DOMESTIC TERRITORY OF COUNTRY
Economic or domestic territory of a country is that
geographical territory administrated by the government
within which a person, goods and capital can circulate freely.
• All political frontiers including territorial, water and airspaces
are a part of domestic territory.
• Embassies, military establishment of a country, located in
abroad ( Eg: Indian embassy in America is a part of Indian
domestic territory).
• Ships and aircrafts operated by the residents of a country
within different parts of world.
• Oil & Gas rings, floating platforms, fishing vessels operated
by the residents of a country in other country.

7. DOMESTIC INCOME (NDPFC)
NDPFC = NET DOMESTIC PRODUCT FACTOR COST
The sum total of Factor Income (Compensation
of employees, interest, profit) generated or
earned within the domestic territory of a
country.
Even if it is generated by a normal resident of
the country or a non-resident of the country.

8. NATIONAL INCOME (NNPFC)
NNPFC = NET NATIONAL PRODUCT FACTOR COST
Sum total of factor income (COE, profit, etc.)
generated or earned by a resident of a country.
It is either earned in the same country or might
be earned outside the country.

9. MARKET PRICE AND FACTOR COST
FACTOR COST: It refers to amount paid to the
factors of production for their contribution in the
production process.
MARKET PRICE: It refers to the price at which
the product is actually sold in the market. It
includes indirect taxes & exclude subsidies.
MARKET PRICE = FACTOR COST + NET INDIRECT TAXES
NET INDIRECT TAXES = INDIRECT TAXES - SUBSIDIES

10. NOMINAL GDP
Here, GDP of a given year is estimated on the
price of the current year or we can say that
when the value of final goods and services
produced in an accounting year are value at
current prices is called Nominal GDP or GDP at
current price.
NOMINAL GDP = Total Production X Current Year Price

11. REAL GDP
Here, GDP of a given year is estimated on the
price of base year or we can say that when the
value of final goods and services produced in an
accounting year are valued at base year price is
called Real GDP or GDP at constant price.
REAL GDP = Total Production X Base Year Price

12. GDP DEFLATOR
Nominal GDP is affected by both, change in price and
physical production. And, Real GDP is affected by
change in physical production only.
To eliminate the effect of price change and to
determine the real change in output, we can use GDP
deflator.
GDP deflator measures the average level of prices of all
the goods and services that make up GDP. It’s called
Price Index.
𝐺𝐷𝑃 𝐷𝑒𝑓𝑙𝑎𝑡𝑜𝑟 =
𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃
𝑅𝑒𝑎𝑙 𝐺𝐷𝑃
X 100

13. CONVERSION OF NOMINAL GDP
TO REAL GDP
REAL GDP =
NOMINAL GDP
CURRENT PRICE INDEX
x 100

14. THANK
YOU