The National-Income Aggregates and Their Relationships

National-income accounting uses a family of related aggregates. Moving between them means adding or subtracting three adjustments: depreciation, net indirect taxes, and net factor income from abroad.

Gross Domestic Product (GDP) is the money value of all final goods and services produced within the domestic territory of a country in a year, measured at market prices.

Gross National Product (GNP) adds to GDP the net factor income from abroad (NFIA) — the income earned by a country's residents abroad minus the income earned by foreigners within the country:

Net National Product (NNP) subtracts depreciation (consumption of fixed capital) from GNP, because a part of the year's gross output merely replaces worn-out capital and is not a net addition:

National Income (NI), i.e. NNP at factor cost, subtracts net indirect taxes (indirect taxes minus subsidies) from NNP at market prices, so that the total reflects what the factors of production actually earn:

Two further household-level aggregates complete the family:

Personal Income (PI) is the income actually received by households before direct taxes:

Disposable Personal Income (DPI) is what households can freely spend or save after direct taxes:

Per Capita Income is national income divided by the population, a rough indicator of the average standard of living:

$\text{Per Capita Income} = \frac{\text{National Income}}{\text{Population}}$ …