Different types of income
Some other types of income are as follows:
1) DOMESTIC INCOME - Income generated by factors of production within the country from its own resources is called domestic income. It includes; -
(a) wages and salaries
(b) rents
(c) interest
(d) dividends
(e) undistributed corporate profits
(f) mixed incomes
(g) direct taxes
Since domestic income does not include income earned from abroad, it can also be shown as:
Domestic Income= National Income- Net income earned from abroad.
2) PRIVATE INCOME - It is the income obtained by private individuals from any source, productive or otherwise, and the retained income of corporations.
It can be shown as:
Private Income = National Income + Transfer Payments + Interest on Public Debt - Social security - Profits and surpluses of public undertakings.
3) PERSONAL INCOME - it is the total income received by the individuals of a country from all sources before payment of direct taxes in one year, . It can never be equal to national income because the former includes transfer payments whereas they are not included in national income.
Thus,
Personal Income = Private Income - Undistributed Corporate Profits - Profit taxes.
4) DISPOSABLE INCOME - it is also known as personal disposable income. It means the actual income which can be spent on consumption by individuals and families. The whole of the personal income cannot be spent on consumption. Therefore in order to obtain disposable income, direct taxes are deducted from personal income.
Thus,
Disposable Income= Personal income - Direct taxes
But the whole of disposable income is not consumed. It is divided between consumption and savings.
If disposable income is to be derived from national income, then the formula is;
Disposable income = National income - Business savings - Indirect taxes + subsidies - direct taxes on persons - Direct taxes on business - Social security payments + Transfer payments + Net income from abroad.
5) REAL INCOME - it is national income expressed in terms of a general level of prices of a particular year taken as base. National income is expressed in terms of money at current prices but it does not indicate the real state of the economy. To rectify this the concept of real income has been evolved.
In order to find out the real income of a country, a particular year is taken as the base year when the general price level is neither too high nor too low and the price level for that year is assumed to be a 100. Now the general level of prices of the given year for which the real national income is to be determined is assessed in accordance with the prices of the base year. For this purpose the following formula is employed:
Real NNP= NNP for the current year * Base year index(=100) / Current year index.
For eg:-
Suppose 1990-91 is the base year and the national income for 1999-2000 is Rs. 20,000 crores and the index number for this year is 250.
Hence, real national income for 1999-2000 will be;
20000*100/250= 8000 crores
This is also known as national income at constant prices.
6) PER CAPITA INCOME - The average income of the people of a country in a particular year is called Per Capita Income for that year. In order to find out the per capita income for 2001, at current prices, the national income of a country is divided by the population of the country in that year.
PER CAPITA INCOME FOR 2001= National Income for 2001 / population in 2001
Similarly, for the purpose of arriving at the Real Per Capita Income, this very formula is used:
REAL PER CAPITA INCOME FOR 2001= Real National Income for 2001 / population in 2001
This concept helps us to know the average income and standard of living of people of a country. But it is ultimately not so reliable because every country's national income is not equally distributed.
1) DOMESTIC INCOME - Income generated by factors of production within the country from its own resources is called domestic income. It includes; -
(a) wages and salaries
(b) rents
(c) interest
(d) dividends
(e) undistributed corporate profits
(f) mixed incomes
(g) direct taxes
Since domestic income does not include income earned from abroad, it can also be shown as:
Domestic Income= National Income- Net income earned from abroad.
2) PRIVATE INCOME - It is the income obtained by private individuals from any source, productive or otherwise, and the retained income of corporations.
It can be shown as:
Private Income = National Income + Transfer Payments + Interest on Public Debt - Social security - Profits and surpluses of public undertakings.
3) PERSONAL INCOME - it is the total income received by the individuals of a country from all sources before payment of direct taxes in one year, . It can never be equal to national income because the former includes transfer payments whereas they are not included in national income.
Thus,
Personal Income = Private Income - Undistributed Corporate Profits - Profit taxes.
4) DISPOSABLE INCOME - it is also known as personal disposable income. It means the actual income which can be spent on consumption by individuals and families. The whole of the personal income cannot be spent on consumption. Therefore in order to obtain disposable income, direct taxes are deducted from personal income.
Thus,
Disposable Income= Personal income - Direct taxes
But the whole of disposable income is not consumed. It is divided between consumption and savings.
If disposable income is to be derived from national income, then the formula is;
Disposable income = National income - Business savings - Indirect taxes + subsidies - direct taxes on persons - Direct taxes on business - Social security payments + Transfer payments + Net income from abroad.
5) REAL INCOME - it is national income expressed in terms of a general level of prices of a particular year taken as base. National income is expressed in terms of money at current prices but it does not indicate the real state of the economy. To rectify this the concept of real income has been evolved.
In order to find out the real income of a country, a particular year is taken as the base year when the general price level is neither too high nor too low and the price level for that year is assumed to be a 100. Now the general level of prices of the given year for which the real national income is to be determined is assessed in accordance with the prices of the base year. For this purpose the following formula is employed:
Real NNP= NNP for the current year * Base year index(=100) / Current year index.
For eg:-
Suppose 1990-91 is the base year and the national income for 1999-2000 is Rs. 20,000 crores and the index number for this year is 250.
Hence, real national income for 1999-2000 will be;
20000*100/250= 8000 crores
This is also known as national income at constant prices.
6) PER CAPITA INCOME - The average income of the people of a country in a particular year is called Per Capita Income for that year. In order to find out the per capita income for 2001, at current prices, the national income of a country is divided by the population of the country in that year.
PER CAPITA INCOME FOR 2001= National Income for 2001 / population in 2001
Similarly, for the purpose of arriving at the Real Per Capita Income, this very formula is used:
REAL PER CAPITA INCOME FOR 2001= Real National Income for 2001 / population in 2001
This concept helps us to know the average income and standard of living of people of a country. But it is ultimately not so reliable because every country's national income is not equally distributed.
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