Nationa lincome accounting
National income calculation
Published on: Mar 3, 2016
Transcripts - Nationa lincome accounting
The flow of goods and services in a nation over a certain period of time. (usually
The total money value of all goods and services produced by a nation during one
year after deducting the depreciation value of the machines used in production.
The total payments received by the factors of production through the production of
goods and services in a country in a year.
Total net output of the nation.
National income of a country is its annual consumption and not units annual
Gross Domestic Product (GDP)
• Total money value of the all final goods and
services produced within a country in a given time
Gross National Product (GNP)
• Total market value of all final goods and services
produced by the residents of a country during
period of time.
Market Price and Factor Cost
• GDP can be measured at market price and factor
• Market price – current price in the market through
the forces of demand and supply. (actual price
paid by consumers)
• Factor cost – real price earned by producer or
Net National Product (NNP)
• The market value of the net output of goods and
services produced by nation in a year.
• Also referred to as the national income at market
National Income at Factor Cost (NI)
• The total of all income payments made to factor of
• Can be derived from NNP.
Personal Income (PI)
• The income that is actually received by individuals
and household in an economy in a year.
• Deduction made from national income:-
(i) Corporate income taxes
(ii) Retained earning
(iii) Social security contributions
(iv) Insurance premium
Disposable Personal Income (DPI)
• Part of the personal income that is left after the
payment of personal direct taxes.
3 Approaches :
INCOME = PRODUCT = EXPENDITURE
Personal Consumption (C)
- purchase of good and services produced by firms, individuals or
- purchase of capital goods by firms for use in production and in
changes in the firm inventories .
Government Spending (G)
- expenditure incurred by federal, state and local government for
final good and services .
Net Exports ( X-M)
- differences between the value of exports and the value of imports .
Wages and Salaries
- income received by labour from firm for services rendered to
- differences between total interest payment received and total
interest payment made by households .
- payment for rented inputs .
- corporate profits earned by business corporations or
payment of dividends to shareholders .
- measured by net value of all final goods and services
produced by nation during a year .
- OUTPUT APPROACH or VALUE ADDED APPROACH
3 Sectors Contributing in GDP
a) PRIMARY SECTOR : compare Mining and Quarrying, Agriculture,
Forestry and Fishing .
b) SECONDARY SECTOR : compare Manufacturing and Construction .
c) TERTIARY SECTOR : compare Electricity, Gas and Water, Wholesale and
Retail Trade, Finance, Insurance, Real Estate and
Business Services, Transport, Storage and
Communication Government Services and other
National Income Accounting = helps to identify sources of income and
Standard of living comparison .
Economic performance over time .
National planning .
Sectoral contribution .
Economic policy .
Inflationary and deflationary gaps .
National expenditure .
Public sector .
Distribution of income .
heads of expenditure.
The calculation of the national income of a
country is not an easy task . National income
calculations are complicated and complex .
These problems arise due to a lack of a clear
grasp of the national income accounting
procedures . These are two major problems
which will arise when calculating national income
. These problems are practical and conceptual in
1.Problems of non-monetized sector
Problems of a non-monetized sector usually arise in
most third world countries like India , Bangladesh ,
Myanmar , Cambodia , Vietnam and Many African
countries . The existence of a large number of non-monetized
activities in these countries especially in
the agriculture sector makes the computation of the
national income more difficult . This sis due to the fact
that a large quantity of agricultural output in these
countries does not reach the market . It is either
consumed directly by farmers or exchanged for other
goods and services . This lead to difficulties in
calculating the national income .
2. Problem of illiteracy
A large number of small producers in third
world countries are illiterate and are unable to
keep accounts of their productive activities .
Most of the products that they produce are for
self - consumption and not for the market and
records are not kept productivity activity . Thus
they fail to provide accurate information to the
government for the purpose of calculating
national income .
3. Problems of expertise
The lack of professionals such as statisticians ,
researchers , programmers and analysis is a
major problems in third world countries . The
services of these professionals is very important in
estimating national income data accurately with
minimum errors .
4. Problems of less sophisticated machinery
Another important difficulty is the non-availability of
sophisticated machinery such as advanced
computers or programs to compute national income
data . Data collected on national income regardless
of which method is used , need to be analyzed using
sophisticated machinery .
5. Problem of double counting
Another difficulty is double counting which is
usually associated with the product methods .
Double counting implies the possibility of
intermediate goods being included in the national
income more than once.
6. Problem of false information
This problem arises in developed as well as
developing countries . people do not disclose their
income or underestimate their income to avoid
paying higher taxes .
7. Problems of multi - occupations
Another difficulty in calculating national income is the
problem of multi - occupations . People have been
found to be engaged in a number of economic
activities which are not included in the national income
Used to measure the economic growth of a country .
Real Gross National Product (GNP) measured on a fixed
or base year .
NOMINAL GNP = measured in current prices .
Convert Nominal GNP = Real GNP using GNP deflator .
PER CAPITA INCOME
The average income per head of population .
Used as an index change in the standard of living of a
The percentage change in the quantity of goods and
produced from one year to another .