Explain the following aggregates related to national product (national income) and show their interrelationship.

National income related aggregates are basically measures of value of production activity of a country. There are two main categories of national income aggregates — domestic income and national income (or domestic product and national product).
National income at the level of production of goods and services is called national product and at the level of distribution of income is called national income. Thus national product is synonymous to national income. Normally in practical estimates, domestic product is estimated first and then national product is derived from domestic product by adding NFIA.
Before we discuss the above aggregates, it will be useful to understand the following three formulae which are used for explaining the interrelationship of the above aggregates.
(a) Three Formulae. The following three concepts are used as formulae for deriving above-mentioned aggregates and their interrelationship.

1.    Depreciation (Net = Gross - Depreciation). The concept of depreciation (also called consumption of fixed capital) is used to differentiate between gross and net. The term 'gross' means that the value of product includes depreciation whereas 'net' excludes depreciation. Difference between gross and net is value of depreciation. Net is obtained after deducting depreciation from gross. If we add depreciation to net, we get gross, e.g.
Net Product = Gross Product - Depreciation
Net value added = Gross value added - Depreciation
Gross investment = Net investment + Depreciation

2.    Net Indirect Taxes (Market price = Factor cost + NIT). Net indirect tax is the difference between indirect taxes and subsidy. This concept is used to find out the difference between market price and factor cost. Market price (MP) is the price paid by the buyer of a commodity in the market whereas factor cost (FC) is the cost paid by the producer to the factors of production for their services rendered in the production of the commodity. Market price includes factor cost, indirect taxes and subsidies. To find out MP, indirect taxes are added and subsidies are subtracted from factor cost. Symbolically:
Market price = Factor cost + Indirect taxes - Subsidies = Factor cost + Net indirect taxes
Factor cost = Market price - Net indirect taxes
Gross Domestic Product at FC = GDP at MP - Net indirect taxes
Net value added at FC    = Net value added at MP - Net indirect taxes
Gross National Product at MP = GNP at FC + Net indirect taxes

3.    Net Factor Income from Abroad (National = Domestic + NFIA). It is used to differentiate between national and domestic. Briefly NFIA is the difference between factor income received from abroad and factor income paid abroad. By adding net factor income from abroad to domestic income, we get national income. And by subtracting NFIA from national income, we get domestic income, e.g.,
National Income = Domestic income + Net factor income from abroad
Domestic Income = National income - NFIA
Gross National Product = Gross Domestic Product + NFIA

(b) Meaning of Different Aggregates and their Interrelationship. Now with the help of above-mentioned three formulas, we are in a position to explain different aggregates related to national product (income) and their interrelationship. It may be noted that product aggregates and income aggregates are used interchangeably because they are the value of same physical products. There are generally eight aggregates (4 at MP + 4 at FC) which need to be distinguished from each other. Of the four aggregates at MP (or at FC), two pertain to domestic product and two to national product. Since the basis of all aggregates is the value of production within the domestic (economic) territory expressed as GDP, we start with the meaning of gross domestic product at market price. GDP is the primary measure which is used by economists to assess the rate of growth of an economy in a year. If we obtain value of GDP at MP, we can derive other aggregates with the help of above-mentioned three formulae.
(i)    Gross Domestic Product. "GDP at MP is the gross market value of all the final goods and services produced by all producing units located within the domestic territory of a country in an accounting year". Being gross it includes depreciation; being at MP it includes net indirect taxes and being domestic it includes value of output produced within domestic territory by all producers (residents and non-residents) regardless of ownership. The term product refers to value of output less value of intermediate consumption (i.e., value added). GDP is generally recognised as the primary measure because it is an indicator of growth of an economy. Once we estimate value of GDP_MP, we can easily derive national product (income) and other aggregates as shown below with the help of the above-mentioned three formulae.
(ii)    NDP_MP = GDP_MP - Depreciation
(iii)    GNP_MP = GDP_MP + Net factor income from abroad
(iv)    NNP_MP = GNP_MP - Depreciation
(v)    GDP_FC = GDP_MP - Net indirect taxes
(vi)    NDP_FC = GDP_FC - Depreciation
(vii)    GNP_FC = GDP_FC + Net factor income from abroad
(viii)    NNP_FC = GNP_FC - Depreciation
(In addition to the above-mentioned important aggregates, there are many other aggregates related to national income such as private income, personal income, personal disposable income, National disposable income, etc. 

Diagram showing interrelationship. The interrelationship among different aggregates has been shown with the help of three formulae in the following diagram.