SS2 LESSON 5
NATIONAL INCOME ACCOUNTING
National income is the total amount of money earned as rents, wages, interests and profits within a country.
Or
National income is the total value of goods and services produced annually in a country.
MAJOR CONCEPTS
1. Gross Domestic Product(GDP):
The total monetary value of goods and services produced in a country by nationals or residents within a year without considering income from abroad.
2. Gross National Product (GNP):
The total monetary value of goods and services produced in a country by nationals within a year plus net income from abroad
GNP=GDP + net income from abroad – output of foreigners
3. Gross National Product at Factor Price:
Gross national product at factor cost is defined as the value of all final goods and services at market price produced within a country including net factor income from abroad minus net indirect taxes.
GNP at factor cost = GNP at market price-net indirect tax. Net indirect tax is the difference between indirect tax and subsidy
4. Net National Product (NNP):
The total value of goods produced and services provided in a country during one year, after depreciation of capital goods has been deducted.
NNP=GDP-Depreciation
5. Net National Product at Factor Price:
NNP at factor cost = NNP at market price - net indirect taxes
“Factor cost is the 'Price' of the commodity from the producer's side. Market cost is derived after adding the indirect taxes to the factor cost of the product. The formula to calculate is Market Cost = Factor Cost - Subsidies + Indirect Taxes”
6. Personal Income (PI):
This is sum of all the incomes received by all the individuals or household during a given period.
7. Disposable Income (DI):
This is income remaining after deduction of taxes and social security charges from personal income, available to be spent or saved as one wishes.
DI= PI – Direct tax.
8. Per Capital Income:
This is the mean income of the people in an economic unit such as a country or city. It is calculated by taking a measure of all sources of income in the aggregate (such as GDP or Gross national income) and dividing it by the total population.
9. Nominal Income:
This is that part of your salary that is paid out in cash. It is your income in actual currency terms unadjusted for what is termed as inflation
10.Real income:
This is income of individuals or nations after adjusting for inflation. It is calculated by dividing nominal income by the price level.
Uses of National Income Statistics
1. National Income as a measure of economic growth –
2. National Income as an indicator of success or failure of planning
3. Useful in estimating per capita income
4. Useful in assessing the performance of different production sectors
5. Useful in measuring inequalities in the distribution of income.
6. Useful in measuring standards of living
7. Makes international comparisons possible
Methods of Measuring National Income
3 Important Methods for Measuring National Income:
1. Product Method (Output method): In this method, national income is measured as a flow of goods and services.
2. Income Method: Under this method, national income is measured as a flow of factor incomes.
3. Expenditure Method: In this method, national income is measured as a flow of expenditure.
Problems of Calculating National Income
1. Types of goods and services
2. Problem of double counting.
3. Incomplete information
4. Inaccurate population data
5. Illegal transactions
6. Effect of inflation
Cost Of Living
This is the cost of maintaining a certain standard of living
Standard Of Living
This is the degree of wealth and material comfort available to a person or community.
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