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2.5 Summary
2.5
SUMMARY
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National Income Accounting
A set of rules and definitions for measuring aggregate economic activity. The technique used to measure the overall production of the economy and other related variables for the country as a whole.
Gross Domestic Product (GDP)
Measures the total market value of final goods and services produced in an economy in a one year period within a geographic boundary. Regardless of the individual or firm’s nationality.
Gross Nationality Product (GNP)
Measures the total market value of final goods and services produced of citizens and firms of a country in a one-year period. Includes only value of production for citizens and domestic firms generated outside of the country.
Net Factor Income from Abroad
The difference between the two measures corresponds to the net income earned by foreigners. Net Factor Income from Abroad; national factor income earned working in a foreign country less/minus foreign factor income earned working within a country.
National Income
The sum total of all factor income earned by residents of a country; in the form of wages, rent, interest and profit in an accounting year. The market value of all the goods and services produced in a country, in a particular period of time.
Personal Income
The total the income actually received by persons from all sources in the form of current transfer payments and factor income.
Disposable Personal Income
The income remaining with individuals after deduction of all taxes levied against their income and their property by the government.
Per Capita Income
Derived from dividing national income from the total population of the country.
Real Income
The national income expressed in terms of a general level of prices of a particular year, considered as the base year.
Market Price (MP)
The actual market prices paid by consumers; includes indirect taxes.
Market Price vs. Factor Cost
(+) Subsidies (-) Indirect Taxes
(+) Indirect Taxes (-) Subsidies
Factor Cost (FC)
The real price that is earned by sellers; includes subsidies.
Gross Domestic Product vs. Gross National Product
Gross Domestic Product (+) Net Factor Income Received From Abroad (-) Net Factor Income Paid To Abroad
(+) Net Factor Income Paid To Abroad (-) Net Factor Income Received From Abroad
Gross National Product
Gross
The differences between gross and net is depreciation (capital consumption).
Net
The value of net is derived from gross. The value of net must be less than gross.
Gross vs. Net
(-) Depreciation
(+) Depreciation
Factor Approach Income Approach
Focuses on the income households receive for supplying their factor services, example being labour services. NNPfc or National Income is total income earned by citizens and businesses of a country; combines essentially four factors of production.
Land Labour
Capital Rent Wages and Salaries
Net Interest Gross interest (-) Interest on government loans (-) Interest on consumer loans
Private corporate income
Entrepreneurship Company Profits (+) Dividends/Distributed Profit (+) Undistributed Profit/Retained Earnings (+) Corporate Income Tax Net National Product At Factor Cost (NNPfc)/ National Income
Value Added Approach Product Approach
The total value of all final goods and services can be found out by adding up the total values of outputs produced at different stages of production. Used to avoid double-counting or an over-estimation of GDP.
(1) Primary Sector
(2) Secondary Sector Agriculture Forestry Fishing Mining and quarrying Factory Manufacturing Construction
(3) Tertiary Sector
Electricity, gas and water Transport, storage and communication Wholesale, retail, hotel and restaurant Finance, insurance and real estate Government services Other services Gross Domestic Product At Market Price (GDPmp)
Expenditure Approach
Focuses on the expenditures made by individuals or households for goods and services, the payment of which is made to firms. GDPmp is made up of the sum total of 4 sectors’ expenditures.
