GDP vs. National Income — What's the Difference?
By Tayyaba Rehman — Published on November 12, 2023
GDP (Gross Domestic Product) measures the total value of goods and services produced within a country's borders, while National Income calculates the total income earned by a nation's residents, both domestically and internationally.
Difference Between GDP and National Income
Table of Contents
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Key Differences
GDP, or Gross Domestic Product, represents the sum total of the value of goods and services produced within a country's geographical boundaries in a specific time period. National Income, in contrast, refers to the sum of all incomes earned by the residents of a country, regardless of where that income is generated.
GDP emphasizes the geographical location of production, whereas National Income stresses the ownership of resources. For instance, a foreign company operating in the U.S. contributes to the U.S.'s GDP, but the profits sent back to the foreign country would not be included in the U.S. National Income.
It's worth noting that while GDP provides an understanding of the health of a country's economy, National Income provides insight into the well-being of its residents. The GDP might be high in a country, but if a significant portion of that wealth goes abroad, the National Income might be comparatively lower.
While both GDP and National Income are crucial economic indicators, they offer different perspectives. GDP focuses on production within a country, while National Income offers a broader view, including international income flows and ownership.
Comparison Chart
Definition
Total value of goods and services produced within a country's borders.
Total income earned by a nation's residents, domestically and internationally.
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Focus
Location of production.
Ownership of income.
Includes
All domestic production, regardless of ownership.
Income from abroad, excludes income earned domestically by foreigners.
Indicator of
Economic health and production capacity of a country.
Economic well-being of residents.
Affected by
Domestic production factors, like industrial output and services.
Global factors, such as foreign investments and overseas business operations.
Compare with Definitions
GDP
Total monetary value of all finished goods and services produced within a country's borders.
The GDP of the U.S. reflects its economic output and production capabilities.
National Income
The sum of all incomes earned by residents of a country, regardless of the source.
The National Income accounts for incomes earned domestically and abroad.
GDP
Measures production based on geographical boundaries.
China's GDP includes all goods produced within its geographical limits.
National Income
Represents the ownership of resources and income.
National Income gives a clear picture of who owns and benefits from resources.
GDP
An indicator of a nation's economic health.
Economists monitor GDP growth rates to predict future economic trends.
National Income
Provides an insight into the well-being of a nation's residents.
If the National Income is high, it suggests residents are earning well.
GDP
Calculated quarterly or annually.
The quarterly report showed a 2% rise in the GDP.
National Income
Takes into account net income from abroad.
National Income includes profits from overseas investments.
GDP
Excludes net incomes from abroad.
While a foreign company's operations contribute to U.S. GDP, the profits sent abroad are not included.
National Income
Calculated as GDP plus net income from abroad, minus depreciation and indirect business taxes.
The economist adjusted the GDP figures to calculate the National Income.
GDP
Measure of the United States economy adopted in 1991; the total market values of goods and services by produced by workers and capital within the United States borders during a given period (usually 1 year)
Common Curiosities
Is GDP a good measure of economic health?
Yes, GDP is a primary indicator of a country's economic health and production capacity.
Does National Income consider international business?
Yes, National Income includes income earned both domestically and from international sources.
Why might GDP be higher than National Income in a country?
If a significant portion of domestic production is owned by foreigners, GDP might be higher than National Income.
How is National Income different from GDP?
National Income includes income earned by a nation's residents, both domestically and internationally, while GDP only considers domestic production.
Can GDP decrease while National Income increases?
Yes, if a country receives a substantial increase in income from abroad, National Income can rise even if domestic production (GDP) decreases.
What does GDP stand for?
GDP stands for Gross Domestic Product.
How is National Income calculated?
National Income is calculated as GDP plus net income from abroad, minus depreciation and indirect business taxes.
How often is GDP calculated?
GDP is typically calculated quarterly and annually.
What contributes to the GDP of a country?
All finished goods and services produced within a country's borders contribute to its GDP.
Does National Income include profits foreign companies send back to their home countries?
No, these profits are deducted from National Income.
Is a high GDP always indicative of high National Income?
Not necessarily; a high GDP with substantial foreign ownership might result in a lower National Income.
Can GDP and National Income be used to compare countries?
Yes, but it's essential to consider differences in cost of living, population size, and other factors.
Does GDP include profits earned by foreign companies within the country?
Yes, GDP includes all domestic production, irrespective of who owns the resources.
Is GDP affected by inflation?
Yes, nominal GDP can be influenced by inflation. Economists use real GDP, adjusted for inflation, for accurate comparisons over time.
Why is National Income significant for policymakers?
It provides insights into the overall economic well-being of a country's residents, helping in policy formulation and decision-making.
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Written by
Tayyaba RehmanTayyaba Rehman is a distinguished writer, currently serving as a primary contributor to askdifference.com. As a researcher in semantics and etymology, Tayyaba's passion for the complexity of languages and their distinctions has found a perfect home on the platform. Tayyaba delves into the intricacies of language, distinguishing between commonly confused words and phrases, thereby providing clarity for readers worldwide.
