1. Capital gains arise when a capital asset such as a house, other property, stocks or shares, etc. is sold at higher price than was paid for it at the time of purchase.
2. Capital gains are excluded from national income.

(i) Gross Domestic Product (GDP) is the total value of output (goods and services) produced by the factors of production located within the country's boundary in a year.
(ii) The factors of production may be owned by anyone-citizens or foreigners.
GDP = GNP - Net income earned from abroad

(i) Nominal income is expressed in terms of a general price level of a particular year. In other words, real income is the buying power of nominal income.
(ii) The real income is derived as follows
National Income at constant price = National Income at current price \(\div\) P₁/P₀

Net Domestic Product = GDP - Depreciation.

GDP deflator is an index of price changes of goods and services included in GDP.
\(\text{GDP deflator}=\frac { Nominal\ GDP }{ Real\ GDP } \times 100\)

(i) NNP is obtained deducting the value of depreciation from GNP.
(ii) NNP = GNP - depreciation allowance.

(i) NDP = GDP - Depreciation.
(ii) NNP = GNP - Depreciation.
(iii) The difference between NDP and NNP is the net factor income from abroad.
(iv) In NDP it is excluded but in NNP it is included.

"The labour and capital of a country acting on its natural resources produce annually a certain net aggregate of commodities, material and immaterial including services of all kinds. This is the true net annual income or revenue of the country or national dividend". - Alfred Marshall

1. The enterprises are classified into various industrial groups.
2. Factor incomes are grouped under labour income, capital income and mixed income.
i) Labour income - Wages and salaries, fringe benefits, employer’s contribution to social security.
ii) Capital income – Profit, interest, dividend and royalty
iii) Mixed income – Farming, sole proprietorship and other professions.
3. National income is calculated as domestic factor income plus net factor incomes from abroad.

(i) The Depreciation cost (or) capital consumption refers to all those expenditure undertaken by the producers to replace the worn out parts of the capital goods like Machinery, tools, equipments and buildings used up in the production of goods and services.
(ii) These expenditure should be excluded from the Gross output

(i) National income is of great importance for the economy of a country.
(ii) National income helps us to know the relative importance and contribution of each sector. We could find how income is produced, how it is distributed, how much is spent, saved or taxed.
(iii) National income data is used to build economic models in short run and long run.
(iv) Data regarding gross income, output, saving & consumption is used in economic planning.
(v) National income data is used to build economic models in short run and long run.
(vi) It is used to make international comparison, inter - regional comparison and inter - temporal comparison of growth of the economy during different periods.
(vii) If income is equally distributed, the per capita income will reflect the economic welfare of the country.

(i) The total expenditure incurred by the society in a particular year is added.
(ii) It includes personal consumption expenditure (C), net domestic investment (I), Government expenditure on consumption and capital goods (G) and net exports (X - M).
\(\mathrm{GNP}=\mathrm{C}+\mathrm{I}+\mathrm{G}+(\mathrm{X}-\mathrm{M})\)
(iii) Second hand goods, purchase of shares and bonds, transfer payments and expenditure on intermediate goods must not be included.

S.No	Personal Income	Disposable Income
1	It is the total income received by the individual before payment of direct taxes in a year	It is the individual's income after the payment of income tax
2		Disposable income = Personal income - Direct tax

Introduction:
National income can be measured by the social accounting method. Under this method, the transactions among various sectors such as firms, households, government are recorded and their interrelationships traced.
Firms:
undertake productive activities. They employ factors of production to produce goods and services.
Households:
Households are consuming entities. They represent the factors of production, who receive payment for services rendered by them to firms. (i) Households consume the goods produced by the firms. There is a circular flow of money between these two groups.
Government:
The Government sector refers to the economic transactions of public bodies at all levels-centre, state and local. Their purchases may be financed through taxation, public borrowings. The government provides public health, education. They satisfy the collective wants of society. But Post Offices and railways are separated from the Government sector and included as "Firms".
Rest of the world:
It relates to international economic transactions - income, export, import external loan transaction, and allied overseas investment income and payments.
Capital sector:
(i) Capital sector refers to saving and investment activities. It includes the transactions of banks, insurance corporations, financial houses. These are not included under "Firms".
(ii) The economy is also divided into primary, secondary tertiary and quaternary sectors.
Conclusion:
The social accounting framework is useful for economists as well as policy makers, because it represents the major economic flows and statistical relationships among various sectors of the economic system. It is possible to forecast the trends of economy more accurately.

(i) National income is of great importance for the economy of a country.
(ii) National income helps us to know the relative importance and contribution of each sector. We could find how income is produced, how it is distributed, how much is spent, saved or taxed.
(iii) National income data is used to formulate monetary policy, fiscal policy and other policies.
(iv) Data regarding gross income, output, saving and consumption is uscd in economic planning.
(v) National income data is used to build economic models in short run and long run.
(vi) It is used to make international comparison, inter regional comparison and inter temporal comparison of growth of the economy during different periods.
(vii) If income is equally distributed, the per capita income will reflect the economic welfare of the country.

(a) The total income of a country

(d) Output = Income = Expenditure