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Class 12 Macro Economics Notes · CBSE

Relationships Between Aggregates

Relationships between national income aggregates — formulas, conversions, and numerical problems. Understanding how GDP, GNP, NDP, NNP relate through depreciation, NFIA, and net indirect taxes. CBSE Class 12 Macroeconomics notes.

Last updated: 14 Jul 2026

Notes

Domestic Income vs National Income

Domestic Income (NDP_FC) vs National Income (NNP_FC)
AspectDomestic Income (NDP_FC)National Income (NNP_FC)
Nature of ConceptIt is a **territorial concept** as it includes the value of final goods and services produced **within domestic territory** of a country.It is a **national concept** as it includes the value of final goods & services produced by **normal residents** in the entire world.
Category of ProducersIt considers all producers **within the domestic territory** of the country.It considers all producers who are **normal residents** of the country.
NFIAIt **does not include** Net Factor Income from Abroad (NFIA).It **includes** Net Factor Income from Abroad (NFIA).
In a Closed Economy, which has no economic relations with the rest of the world (meaning NFIA is zero), there is no difference between Domestic Income and National Income.

Closed Economy Identity

NDPFC=NNPFC(when NFIA = 0)NDP_{FC} = NNP_{FC} \quad \text{(when NFIA = 0)}
Think of it this way: if you only earn from your tuition classes in your own city, your “domestic income” equals your “national income.” But if your brother sends ₹10,000/month from his job in Dubai, your family's national income exceeds domestic income by ₹1,20,000/year.

GDP_MP vs National Income (NNP_FC)

GDP at Market Price vs National Income (NNP_FC)
AspectGDP at Market Price (GDP_MP)National Income (NNP_FC)
ConceptGross, Domestic, Market PriceNet, National, Factor Cost
Includes DepreciationYes (Gross)No (Net)
Territory vs ResidenceWithin domestic territoryBy normal residents worldwide
Includes NITYes (Market Price)No (Factor Cost)
Includes NFIANoYes

GDP_MP to NNP_FC (Master Conversion)

NNPFC=GDPMP+NFIA−NIT−DepreciationNNP_{FC} = GDP_{MP} + NFIA - NIT - Depreciation
This is the most important formula in the chapter — it connects the starting aggregate (GDP_MP) to the target aggregate (National Income) through three adjustments. ⭐⭐

Inputs

₹1,00,000
₹2,000
₹8,000
₹5,000

All 8 Aggregates

GDP_MP (Base)₹1,00,000
GDP_FC₹92,000
NDP_MP₹95,000
NDP_FC₹87,000
GNP_MP₹1,02,000
GNP_FC₹94,000
NNP_MP₹97,000
NNP_FC (National Income)₹89,000
⭐ NNP_FC (National Income)₹89,000

The Master Conversion Map

Every aggregate connects to others through exactly one of three adjustments. Click an adjustment type to highlight its connections.

Domestic

GDP_MP
GDP_FC
NDP_MP
NDP_FC

National

GNP_MP
GNP_FC
NNP_MP
NNP_FC

Horizontal = ±NIT  |  Vertical = ±Dep  |  Left↔Right = ±NFIA

Red = Depreciation arrows  |  Purple = NIT arrows  |  Green = NFIA arrows

Exam tip: To convert any aggregate to any other, identify which adjustments (Depreciation, NIT, NFIA) are needed and apply them in the correct direction.

Key Takeaways

Key Takeaways

  • ⭐⭐ NNP_FC is called National Income — the most important aggregate.
  • ⭐⭐ NDP_FC is called Domestic Income.
  • ⭐ The master conversion: NNP_FC = GDP_MP + NFIA − NIT − Depreciation.
  • ⭐ In a closed economy (NFIA = 0), Domestic Income = National Income.
  • ⭐ 'Domestic' = within borders; 'National' = by normal residents.
  • ⭐ 'Gross' = includes depreciation; 'Net' = excludes depreciation.
  • ⭐ 'Market Price' = includes NIT; 'Factor Cost' = excludes NIT.
  • ⭐ GNP_MP can be less than GDP_MP if NFIA is negative.