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Income increases people's living standards and so, if people earn more, then their standard of living goes upwards and vice versa. But this doesn't affect people only on a micro or personal level, but income which is the result of the addition of production pieces also contributes to the aggregate value of a country's living standards. This is counted as national income. But national income doesn't just mean income which is generated by simply individuals; there's more to it:

What is National Income?

National income gets calculated by GDP (Gross Domestic Product) so the higher this GDP is, the better a country's economy will be. In a nutshell, national income is counted as the total value added to an economy by the total input of all production factors. National income also gets generated by surplus or tax, which is earned by the government. Some of that is retained as part of reserves while some of it is also invested back into various business entities. Moreover, a part of it also falls into the foreign factor while the rest of it flows on to families in the form of salaries or wages. 

So, if this is national income, then what is the individual income which was being talked about earlier?

What is Personal Income?

Whatever an individual manages to earn in a specific period is known as the personal income of that person. It gets calculated on an annual basis since that is the period taken for considering the total income of an individual. But not every cent of that money is of the person as some of it has to be paid out in the form of taxes and other types of government impositions. 

What is the difference between National Income and Personal Income? 

  • Factors of Production: National income includes the earnings which are generated by various factors involving production but personal income, on the other hand, involves earnings which are received by those factors of production. As such, personal income is more of a receipt concept. 
  • Additions: Factors like windfall gains resulting from a lottery and such gets included in personal income but not in the national income. 
  • Government sector: Income coming from the government sector is included in national income but not in personal income. 
  • Undistributed Profits: The Undistributed profits of companies along with corporate profit taxes are also the part of national income, but these are excluded from national income when personal income is calculated. 

These all make for the differences between personal income and national income. 


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