National rent

What is the national income?

The concept of national income, also called national income, refers to the Total production of goods and services valued in terms of monetary units of a country, at current market prices.

National income is an economic magnitude composed of all the income that receive the productive factors of a nation during a year, discounting the intermediate goods and services that have been used to produce them.

The last indicated is done to avoid double counting of certain items, omitting all inter-industrial relations and attending only to finished goods, thus avoiding counting as a final product the manufacture of one company that is incorporated as raw material to the production of another. business.

It should be noted that when calculating national income there are some economic activities that are not counted, such as the work performed by a housewife at home, which do not appear as part of the production of a country and are not considered income generators.

What factors make it up?

The measurement of national income consists of an estimate of the monetary value, at current prices, of the production of goods and services that have passed through the market mechanism, there are 2 methods or approaches for their measurement:

• National income at factor costIn this approach, national income is an estimate of all the payments made by the producing companies to the owners of the productive services, these payments constituting the companies' production costs. These costs represent at the same time the monetary income of the owners of the productive services. The components of national income at factor cost are:
  • Salaries and other fringe payments
  • The earnings of unincorporated companies.
  • The earnings of the incorporated companies.
  • The rents.
  • Interest generated in the private sector.
• National income at the monetary value of the total production of goods and services: under this method, national income is determined by means of the total expenditure of society and is divided into 3 main components:

Types of national income

National income is classified as follows:

• Gross national income: it reflects the gross sum of all the retributions generated by the productive forces of a nation, which have taken place in the economic year under study, including the consumption of capital that was necessary during the productive process. The consumption of capital represents the loss of value suffered by capital goods due to their use, and is known as depreciation.
• Net national income: when depreciation is deducted in the computation of gross national income, net national income is obtained, which means that this macroeconomic magnitude reflects the production of goods and services free from the consumption of capital goods.

National income and gross domestic product

The national income is the sum of the retributions of all the factors of production of a nation. Therefore, it should include the Income received outside the country by domestic factors of production, and on the other hand, exclude the income received by foreign production factors within the country.

Regarding the gross domestic product (GDP), this represents the total value of final goods and services that are produced by the residents of a country during a specified period, usually one year.

In the case of GDP, what is relevant is that all income generated within the territory of a nation is counted, regardless of whether it is produced by nationals or foreigners, and whether they are people or companies.

For example, a Venezuelan who works in Argentina will add to the Argentine GDP, not the Venezuelan.