National Income Accounting

1. National Income Accounting MACROECONOMIC

2. 11.1 Definition of National Income

3. 11.2 Concepts of National Income Gross Domestic Product (GDP) Total money value of the all final goods and services produced within a country in a given time period. Gross National Product (GNP) Total market value of all final goods and services produced by the residents of a country during period of time.

4. Market Price and Factor Cost GDP can be measured at market price and factor cost. 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 seller.

5. 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 prices. National Income at Factor Cost (NI) The total of all income payments made to factor of production. Can be derived from NNP.

6. Personal Income (PI) The income that is actually received by individuals and household in an economy in a year. Deduction made from national income:- Corporate income taxes Retained earning Social security contributions Insurance premium Disposable Personal Income (DPI) Part of the personal income that is left after the payment of personal direct taxes.

7. 11.3 Method of Measuring National Income 3 Approaches : Expenditure Approach Product Approach Income Approach EXPENDITURE APPROACH Personal Consumption (C) - purchase of good and services produced by firms, individuals or households . Investment - 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 . INCOME = PRODUCT = EXPENDITURE

8. INCOME APPROACH Wages and Salaries - income received by labour from firm for services rendered to them . Net Interest - differences between total interest payment received and total interest payment made by households . Rental income - payment for rented inputs . Profit - corporate profits earned by business corporations or payment of dividends to shareholders . PRODUCT APPROACH - measured by net value of all final goods and services produced by nation during a year . - OUTPUT APPROACH or VALUE ADDED APPROACH

9. 3 Sectors Contributing in GDP PRIMARY SECTOR : compare Mining and Quarrying, Agriculture, Forestry and Fishing . SECONDARY SECTOR : compare Manufacturing and Construction . 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 services .

10. 11.4 Uses of National Income REASONS : 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 . National Income Accounting = helps to identify sources of income and heads of expenditure.

11. 11.5 Difficulties in Calculating National Income 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 natural . 

12. 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 . 

13. 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 . 

14. 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 . 

15. 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 .

16. 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 .

17. 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 .

18. 11.6 Real Income, Per Capita Income and Growth Rate REAL INCOME Used to measure the economic growth of a country . Real Gross National Product (GNP) measured on a fixed price 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 country.

19. GROWTH RATE The percentage change in the quantity of goods and services produced from one year to another .

20. P E A C E (Y) =D T H A N K Y O U . . .