The National Income Accounting

National Income measures the total value of an economy's final output of goods and services in a year

National income also refers to net national product at factor cost (NNP) is the money value of all final goods and services produced by residents regardless of whether the production takes place and less depreciation in a given period of time, usually year.

GDP and GNP are two common measures of national income and output for a given country’s economy

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GDP of a nation is total market value of all final goods and services newly produced within the geographical boundaries of a country during a specified period usually one year

GNP is market value of all final goods and services newly produced during a specified period usually one year, by productive factors owned by residents of th country, irrespective of whether these factors are located within the geographical boundary of the country or abroad.

  

3 methods for counting GDP are:

• Output method:  totals  the value of goods and services produced by all the various productive units, including the government in the country.

• Expenditure method:  sums up the expenditures of both the private and government sectors on consumption and investment.

• Income method: aggregates all incomes receives by individuals and organizations for their contributions towards the national output.

Uses of national income are:

• To indicate the overall standard of living of the people in the country

• To measure the rate of economic growth

• To calculate the rate and direction in which a nations income is growing

• To indicate the distribution of factor incomes among wage-earners and property owners

• To assist the government in formulating policies

• To assist firm in their marketing and research

• To assist international economic planning

The limitations of this NI is that it difficult to ascertain accurately the value of capital consumption. Estimates of capital consumption are extremely imprecise and tend to be influenced by income tax laws than by other considerations.

The difficulties in measuring National income are:

• Arbitary definitions-

• Imputation of values

• Omissions in measurement of NI

• Difficulty in obtaining reliable and complete information

• Difficulty in calculating depreciation

• Danger of double-counting

Interpretation of changes in the value of national income must be made with careful qualifications. For meaningful comparisons to be made, the user must be aware of possible problems when using these statistics.

By counting the standard of living of a country, GDP and GNP measures the welfare of its people. It has weaknesses indicated earlier, briefly, NI figures do not reflect the distributions of income, externalities and disamenities. They do not include goods and services that are not for sale.