What is National Income Accounting (Macro Economics)

National income accounting is a double-entry accounting system used by the government to measure how well a country’s economy is performing.

The value-added approach, income approach, and expenditure approach are different ways to calculate national income. They can be used in combination, depending on the concerned income group and sector.

The statistics provided by national income accounting can be used by the government to set or modify economic policies, interest rates, and monetary policy.

1. National Income Accounting vaibhav

2. Macroeconomics Macroeconomics is the branch of economics that studies the behavior and performance of an economy as a whole. It focuses on the aggregate changes in the economy such as unemployment, growth rate, gross domestic product and inflation . Indicators Macroeconomists study aggregated indicators such as GDP, unemployment rates, and price indices to understand how the whole economy functions and develop models that explain the relationship between such factors as national income , output, consumption, unemployment, inflation, savings, investment, government spending, and international trade. 

3. National Income The National  Income  is the total amount of income accruing to a country from  economic activities  in a years time. It includes payments made to all resources either in the form of  wages , interest, rent, and profits . The progress of a country can be determined by the  growth  of the national income of the country National income is the total money value of goods and services produced by a country in a particular period of time . The duration of this period is usually one year. National income can be defined by taking three viewpoints, namely production viewpoint, income viewpoint, and expenditure viewpoint .

4. National Income Methods 1. Product method Also known as the value-added method, the product method is based on the net value added to the product at every stage of production . In the product method, the economy is usually divided into different industry sectors, such as fishing, agriculture, and transport. The national income is calculated by adding the total output of the companies in the economy. The method shows the contribution of each sector to the national income, hence demonstrating the importance of different sectors relative to each other.   2. Income method In the income method, the national income is measured by adding up the pretax income generated by the individuals and companies in the economy. It consists of income from wages, rent of buildings and land, interest on capital, profits, etc. in an  accounting year . The income method shows the national income distribution among different earning groups in the economy.   3. Expenditure method In the expenditure method, the national income is measured by adding up the expenditures made by individuals, companies, and the government. Thus, it combines consumer spending, investments made by companies, net exports, and government spending to calculate the national income .

5. National Income Accounting Equation The national income equation represents the relationship between national income and the economy’s expense, along with other attributes, as shown in the following equation : Where: Y  – National income C  – Personal consumption expenditure I  – Private investment G  – Government spending X  – Exports M  – Imports

6. What is National Income Accounting ? National income accounting is a double-entry accounting system used by the government to measure how well a country’s economy is performing . The value-added approach, income approach, and expenditure approach are different ways to calculate national income. They can be used in combination, depending on the concerned income group and sector . The statistics provided by national income accounting can be used by the government to set or modify economic policies, interest rates, and monetary policy .

7. National Income Accounting and Gross Domestic Product Gross Domestic Product (GDP), Net National Product (NNP),  Gross National Product (GNP) , personal income, and disposable income are the important metrics determined by national income accounting. However, the most commonly used measure of the economy is GDP. It is the cumulative value of  products and services  generated in an economy over a given period of time. Only the goods produced in the home country are included in the GDP, regardless of the nationality status of the company owners. The gross domestic product figure may not represent the correct value, as some goods may not even make it to the market, which makes it difficult to determine the true value of the market. Nevertheless, GDP reasonably represents the national output. The other economic measures can be derived from GDP .

8. National Income Accounting Social Accounting Input Output Accounting Flow of Funds Accounting Balance of Payments Accounting

9. Social Accounting The term “Social Accounting” was first introduced into economics by J.R. HICKS in 1942. It means “ nothing else but the accounting of the whole community or nation, just as private accounting the accounting of the individual firm ” It is the Method of s tudying the structure of the body economic. Social Accounting is concerned with the statistical classification of the activities of human being and human institutions in ways which help us to understand the operation of the economy as a whole. Components Production Account Consumption Account Govt. Account Capital Account Foreign Account

10. Input-Output Accounting The input output analysis tells us that there are industrial inter-relationship and inter-dependence in the economic system as a whole. The inputs of one industry are the output of another industry ,so that ultimately their mutual relationships lead to equilibrium between supply and demand in the economy as a whole. Money Value of aggregate output of the whole economy must equal the sum of the money values of inter industry inputs plus the sum of money value of inter industry outputs.

11. Flow of Funds Accounts Monetary of financial transactions whereby one sector places its saving at the disposal of the other sector of the economy by means of loans, capital transfers. The flow of funds accounts are meant to supplement national income and product accounts. It is developed by Prof. Morris Copeland in 1952 to overcome the weaknesses of national income accounting. The flow of funds accounting system is presented in the form of a Metrix by placing sources and use of funds statement of different sectors side by side.