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The Total amount of money earned within a country defined as National Income .
 
To Contribute for GNP in an given year , a country uses some fixed assets and capital goods like Machinery , Equipments etc . These Capital goods depreciate year by year during production process .
So to get NNP we Deduct Depreciation from GNP . In Simple Terms it define as Net National Product ( NNP) at market prices .
 
Now in Above Scenario  NNP at market prices it includes INDIRECT TAXES ( Which accrue to government) and SUBSIDIES ( which is granted by government)
 
Indirect taxes are imposed on goods and services because of which commodity price increases and this tax accrue to the government . So, to calculate NNP at factor cost we must deduct from NNP at market price
 
Subsidies are granted by government on prices of some commodities to lower the price of commodity in order to be benefited by people . So, to calculate NNP at factor cost we must add  NNP at market price
FORMULA ,
NNP at factor cost ( National Income) = NNP at market prices – Indirect taxes + Subsidies
 

Importance of National Income 

  • It helps to measure the size of the economy .
  • It helps to trace the trend of economic growth as compared to previous year growth .
  • It helps to make projections for future development and its statistics assists in budget and economic policy formulation to increase growth rate and fix targets for different sectors on basis of earlier performance
  • It helps business to forecast future demands of the products and also help government to formulate sustainable development plans.
  • It helps to compare living standard of people .
 
 
 
 
 
 
 
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