National Income Aggregates — Part 2: Income Concepts, Real GDP and Welfare: visual lesson, ISC Class 12 Economics

Lesson

Income Concepts, Real GDP and Welfare

Part 2 — from domestic income to household income, from nominal to real GDP, and GDP and welfare.

In this lesson you will

Calculate private income, personal income and personal disposable income
Calculate gross and net national disposable income
Distinguish real from nominal GDP and use the GDP deflator
Explain why GDP is an imperfect index of economic welfare

Part 2 at a glance

Diagram

From domestic income to household income

Each step narrows the income: first to the private sector, then to persons, then to what persons can freely use.

Concept

Private income

Private income = income from domestic product accruing to the private sector + NFIA + current transfers from government + net current transfers from abroad + interest on national debt.

Table for imagined Lohitpur: income accruing to the private sector 8300; adding NFIA, transfers from government and from abroad and interest on national debt gives private income 9000; subtracting corporate saving and corporation tax gives personal income 7900; subtracting direct taxes and fees gives personal disposable income 7100
Imagined Lohitpur (₹ crore)	Working	Result
Income accruing to private sector	9,000 − 400 − 300	8,300
Private income	150 + 250 + 120 + 180	9,000
Personal income	− 600 − 500	7,900
Personal disposable income	− 700 − 100	7,100

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