EconomicsISC Class 12 · National Income Concepts and Aggregates

National Income Aggregates and Their Relationships: GDP, GNP, NDP, NNP, Personal and Disposable Income

Updated 17 October 2026 · Fact-checked

GDP at market price is the value of final goods and services produced within the domestic territory in a year. GNP = GDP + net factor income from abroad (NFIA); NNP = GNP - depreciation; factor cost = market price - net indirect taxes. NNP at factor cost is national income. Personal income, personal disposable income and per capita income are derived from it, and real GDP (adjusted for prices) is a better guide to growth than nominal GDP.

Add NFIA to get GNP, subtract depreciation to get NNP, then subtract net indirect tax: NNP at factor cost is national income.

Illustration drawn for QuestionBuddy.

Understand National Income Aggregates and Their Relationships: GDP, GNP, NDP, NNP and Disposable Income

1. Basic terms. Final goods are goods meant for consumption or investment and are not processed further; intermediate goods are used up in production and are not counted (to avoid double counting). Domestic territory is the geographical area under the economic control of the government. Normal residents are people who ordinarily live in the country. Net factor income from abroad (NFIA) = factor income earned by residents from abroad - factor income earned by non-residents in the domestic territory.

2. The aggregates.

GDP at market price (GDPmp): value of all final goods and services produced within the domestic territory in a year, at market prices (including net indirect taxes).
GNP at market price = GDPmp + NFIA. (Domestic territory plus factor incomes of residents from abroad.)
NDP at market price = GDPmp - depreciation (consumption of fixed capital).
NNP at market price = GNPmp - depreciation = NDPmp + NFIA.
Factor cost: market price - net indirect taxes, where net indirect taxes (NIT) = indirect taxes - subsidies. So GDP at factor cost = GDPmp - NIT; GNP at factor cost = GNPmp - NIT; NNP at factor cost = NNPmp - NIT.
National income (NY) = NNP at factor cost = the total of factor incomes earned by the residents.

Summary chain: GDPmp + NFIA = GNPmp; GNPmp - depreciation = NNPmp; NNPmp - NIT = NNPfc = national income.

3. Factor income versus transfer income. Factor incomes (wages, rent, interest, profit) are payments for productive services and are counted. Transfer payments (pensions, scholarships, unemployment benefit, gifts) have no matching productive service and are not part of national income. Also excluded: sale of second-hand goods (only the commission counts), purchase of shares and bonds, and illegal activities.

4. Income concepts derived from national income.

Private income = factor income from domestic product and abroad accruing to the private sector + current transfers (from government and abroad).
Personal income = national income - undistributed profits - corporation tax - net interest paid by households (and social security contributions) + transfer payments. It is what households actually receive.
Personal disposable income (PDI) = personal income - personal income taxes (direct taxes) and other compulsory payments; households split it into consumption and saving.
National disposable income (NDI): net NDI = NNP at market price + net current transfers from the rest of the world; gross NDI = net NDI + depreciation (gross NDI = GNPmp + net current transfers from abroad).
Per capita income = national income / population.

5. Real and nominal GDP. Nominal GDP is valued at current prices; real GDP at constant base-year prices (= nominal GDP x 100 / price index). The GDP deflator = nominal GDP / real GDP x 100. Real GDP shows changes in actual output; nominal GDP can rise from prices alone.

6. GDP and economic welfare. GDP per head is an indicator of economic welfare, but a limited one: it ignores the distribution of income, non-market activities (household work), the quality of life, leisure, environmental damage (negative externalities), the composition of output (arms versus health) and the kinds of goods produced. Nominal per capita income may rise while the standard of living falls if prices rise faster.

National Income Aggregates and Their Relationships: GDP, GNP, NDP, NNP and Disposable Income: key facts

GNP at market price: GNPmp = GDPmp + NFIA
NNP at market price: NNPmp = GNPmp - depreciation
Factor cost: GNPfc = GNPmp - net indirect taxes; NNPfc = NNPmp - net indirect taxes = national income
Personal income: PI = NY - undistributed profits - corporation tax + transfer payments
Personal disposable income: PDI = PI - personal income taxes
Real GDP: Real GDP = nominal GDP x 100 / price index; GDP deflator = nominal / real x 100

How to answer National Income Aggregates and Their Relationships: GDP, GNP, NDP, NNP and Disposable Income questions

Aggregates are related by three adjustments: add NFIA to move from domestic to national, subtract depreciation to move from gross to net, subtract net indirect taxes to move from market price to factor cost.

1Write the target aggregate and start from the one given.
2Domestic to national: + NFIA (negative if net outflow).
3Gross to net: - depreciation.
4Market price to factor cost: - net indirect taxes (indirect taxes minus subsidies).
5For personal income and PDI, subtract the items listed and add transfers.
6Check using two routes, for example NDPfc + NFIA = NNPfc.

National Income Aggregates and Their Relationships: GDP, GNP, NDP, NNP and Disposable Income in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

A small economy's accounts

Suppose in a year an economy has GDP at market price of Rs 10,000 crore, net factor income from abroad of Rs 300 crore, depreciation of Rs 800 crore, and indirect taxes of Rs 1,000 crore with subsidies of Rs 100 crore.

Find GNP at market price, NNP at market price and national income.

Try it first, then show the solutionSolution

Net indirect taxes = 1,000 - 100 = Rs 900 crore.
GNPmp = 10,000 + 300 = Rs 10,300 crore.
NNPmp = 10,300 - 800 = Rs 9,500 crore; NNPfc = 9,500 - 900 = Rs 8,600 crore.

Answer: GNP at market price is Rs 10,300 crore, NNP at market price Rs 9,500 crore and national income (NNP at factor cost) Rs 8,600 crore.

Memory hook: Add abroad, subtract wear, subtract tax net of subsidy.

Tricks to remember National Income Aggregates and Their Relationships: GDP, GNP, NDP, NNP and Disposable Income

Short memory aids. Say each one aloud once, then use it on a question the same day.

G to N: depreciation
Gross means before depreciation; net means after.
Use it when: GDP/NDP, GNP/NNP.
D to N: NFIA
Domestic means within the territory; national means by residents: add NFIA.
Use it when: GDP to GNP.
MP to FC: net indirect taxes
Market price includes taxes less subsidies; factor cost does not.
Use it when: Price level conversion.

National Income Aggregates and Their Relationships: GDP, GNP, NDP, NNP and Disposable Income: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: National income · 1 mark · MCQBoard level

The total of factor incomes earned by the normal residents of a country in a year is its:
(a) GDP at market price
(b) GNP at market price
(c) NNP at market price
(d) national income

Try it first, then show the solutionSolution

Factor incomes of residents, net of depreciation and valued at factor cost, make up national income (NNP at factor cost).

Answer: (d) national income

Example 2: From GDP to national income · 3 marks · Short answerBoard level

GDP at market price is Rs 10,000 crore, net factor income from abroad Rs 300 crore, depreciation Rs 800 crore and net indirect taxes Rs 900 crore. Calculate GNP at market price, NNP at market price and NNP at factor cost. (3 marks)

Try it first, then show the solutionSolution

GNPmp = 10,000 + 300 = Rs 10,300 crore.
NNPmp = 10,300 - 800 = Rs 9,500 crore.
NNPfc = 9,500 - 900 = Rs 8,600 crore.

Answer: GNPmp = Rs 10,300 crore; NNPmp = Rs 9,500 crore; NNPfc = Rs 8,600 crore.

Example 3: Two routes · 4 marks · Short answerHarder board level

Using the data above, find GDP at factor cost and NDP at factor cost, and verify NNP at factor cost by a second route. (4 marks)

Try it first, then show the solutionSolution

GDPfc = GDPmp - NIT = 10,000 - 900 = Rs 9,100 crore.
NDPfc = GDPfc - depreciation = 9,100 - 800 = Rs 8,300 crore.
NNPfc = NDPfc + NFIA = 8,300 + 300 = Rs 8,600 crore, the same as the first route.

Answer: GDPfc = Rs 9,100 crore; NDPfc = Rs 8,300 crore; NNPfc = Rs 8,600 crore by both routes.

Example 4: Personal and disposable income · 4 marks · Short answerHarder board level

National income is Rs 8,600 crore. Undistributed profits are Rs 200 crore, corporation tax Rs 150 crore and transfer payments Rs 450 crore. Households pay Rs 500 crore as direct taxes. Find personal income and personal disposable income. Also, with net current transfers from abroad of Rs 100 crore, find net and gross national disposable income (NNPmp = 9,500, depreciation = 800). (4 marks)

Try it first, then show the solutionSolution

Personal income = 8,600 - 200 - 150 + 450 = Rs 8,700 crore.
PDI = 8,700 - 500 = Rs 8,200 crore.
Net NDI = 9,500 + 100 = Rs 9,600 crore.
Gross NDI = 9,600 + 800 = Rs 10,400 crore (check: GNPmp 10,300 + 100).

Answer: Personal income Rs 8,700 crore; PDI Rs 8,200 crore; net NDI Rs 9,600 crore; gross NDI Rs 10,400 crore.

Example 5: Real GDP, growth and welfare · 4 marks · Short answerHOTS / competency

Nominal GDP is Rs 10,000 crore with a price index of 125 and, a year later, Rs 11,550 crore with an index of 140. Population rises from 50 crore to 51 crore. Find real GDP in each year, the growth in nominal and real GDP, and the change in real GDP per person. What does the comparison show about welfare? (4 marks)

Try it first, then show the solutionSolution

Real GDP year 1 = 10,000 x 100/125 = Rs 8,000 crore; year 2 = 11,550 x 100/140 = Rs 8,250 crore.
Nominal growth = 1,550/10,000 = 15.5%; real growth = 250/8,000 = 3.125%.
Real GDP per person: 8,000/50 = 160 and 8,250/51 = about 161.76: a rise of about 1.1%.
Nominal GDP overstates the improvement; the gain in real output per head is small, and GDP also ignores distribution and environmental effects.

Answer: Real GDP is Rs 8,000 crore and Rs 8,250 crore; nominal growth 15.5% against real growth 3.125%, and real GDP per person rises by only about 1.1%.

Where students lose marks in National Income Aggregates and Their Relationships: GDP, GNP, NDP, NNP and Disposable Income

The slips examiners see most often, and what to write instead.

Mistake: Subtracting NFIA instead of adding
Direction error.
Wrong working
GNPmp = 10,000 - 300.
Right working
GNPmp = GDPmp + NFIA = 10,000 + 300 (subtract if NFIA is negative).
Do this: National = domestic + NFIA.
Usually costs: 2 marks.
Mistake: Subtracting indirect taxes only
Forgetting subsidies.
Wrong working
FC = MP - 1,000.
Right working
FC = MP - (indirect taxes - subsidies) = MP - 900.
Do this: Use net indirect taxes.
Usually costs: 2 marks.
Mistake: Including transfer payments in national income
Treating pensions as factor income.
Wrong working
Old-age pension is included in national income.
Right working
Transfer payments are excluded from national income (but included in personal income).
Do this: Ask whether a productive service was given.
Usually costs: 2 marks.
Mistake: Comparing nominal GDP over time
Ignoring prices.
Wrong working
GDP rose from 10,000 to 11,550, so output rose 15.5%.
Right working
Deflate: real GDP rose from 8,000 to 8,250, 3.125%.
Do this: Use real GDP for growth.
Usually costs: 2 marks.

Exam tips

Learn the chain GDPmp, GNPmp, NNPmp, NNPfc and the three adjustments.
Show both gross/net and market price/factor cost explicitly in every numerical.
Give two or three limitations of GDP as a measure of welfare and the reason for each.
Remember transfer payments and second-hand sales are excluded, as is the value of intermediate goods.
Students often confuse transfer payments with factor incomes; transfer payments are excluded from national income.

Practice questions on National Income Aggregates and Their Relationships: GDP, GNP, NDP, NNP and Disposable Income

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
If GNP at market price is Rs 5,000 crore and depreciation is Rs 400 crore, NNP at market price is:
(a) Rs 4,600 crore
(b) Rs 5,400 crore
(c) Rs 5,000 crore
(d) Rs 4,400 crore
Hint
Net means after wear and tear.
Answer
(a) Rs 4,600 crore
Q2 · 3 marks · Short answerBoard level
GDP at factor cost is Rs 7,200 crore, NFIA is Rs -150 crore, depreciation is Rs 500 crore and net indirect taxes are Rs 600 crore. Calculate GNP at factor cost, NNP at factor cost and GNP at market price. (3 marks)
Hint
Add NFIA, subtract depreciation, add NIT for market price.
Answer
GNPfc = 7,200 - 150 = Rs 7,050 crore; NNPfc = 7,050 - 500 = Rs 6,550 crore; GNPmp = 7,050 + 600 = Rs 7,650 crore.
Q3 · 4 marks · Short answerHarder board level
National income is Rs 6,550 crore, undistributed profits Rs 150 crore, corporation tax Rs 100 crore, transfer payments Rs 300 crore, and direct taxes paid by households Rs 450 crore. Find personal income, personal disposable income, and per capita PDI if the population is 3 crore. (4 marks)
Hint
PI = NY - undistributed profits - corporation tax + transfers.
Answer
PI = 6,550 - 150 - 100 + 300 = Rs 6,600 crore. PDI = 6,600 - 450 = Rs 6,150 crore. Per capita PDI = 6,150/3 = Rs 2,050 per person.
Q4 · 4 marks · Short answerHarder board level
Nominal GDP is Rs 20,000 crore at a price index of 125 in one year and Rs 24,000 crore at a price index of 150 in the next. Find real GDP in each year and the growth in nominal and real GDP. What do you conclude? (4 marks)
Hint
Real GDP = nominal x 100/index.
Answer
Real GDP: 20,000 x 100/125 = Rs 16,000 crore; 24,000 x 100/150 = Rs 16,000 crore. Nominal GDP grew by 20%, real GDP by 0%. All of the apparent growth was due to higher prices.
Q5 · 3 marks · Short answerHOTS / competency
Nominal per capita income rises by 8 per cent while prices rise by 12 per cent. Find the approximate change in real per capita income and explain whether the standard of living has risen. Give two reasons why even real per capita GDP may be an incomplete measure of welfare. (3 marks)
Hint
Divide 1.08 by 1.12.
Answer
Real per capita income changes by 1.08/1.12 - 1 = about -3.6%: it falls, so the standard of living has fallen despite the rise in nominal income. Real GDP per capita still ignores the distribution of income (the average may hide inequality) and non-market activities and environmental damage.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.GNPmp equals?Show answer
GDPmp + NFIA.
2.National income equals?Show answer
NNP at factor cost.
3.Net indirect taxes?Show answer
Indirect taxes - subsidies.
4.Are transfer payments in national income?Show answer
No.
5.Real GDP formula?Show answer
Nominal GDP x 100 / price index.

National Income Aggregates and Their Relationships: GDP, GNP, NDP, NNP and Disposable Income: frequently asked questions

What is the difference between GDP and GNP?

GNP = GDP + net factor income from abroad.

How do the market price and factor cost valuations differ?

Factor cost = market price - net indirect taxes.

What is personal disposable income?

Personal income minus personal income taxes: what households can spend or save.

Why is GDP an incomplete measure of welfare?

It ignores distribution, non-market work, environmental damage and the quality of goods.