National Income Accounting

National Income Accounting

There are some poor countries and some rich countries.

How do you Measure the overall performance of an economy?  

The performance of the economy is related to the production of goods and services. The concept of national income accounting was started in the 17th century and developed by Simon Kuznets in the 1930s during the Great Depression. Double-entry accounting is employed by the state. It measures the health of an economy. NI helps in the performance of the economy and the flow of money in an economy. It counts current production. NI is the flow variable.

Generally, national income is interpreted as national output, income, and expenditure. It is because someone’s expenditure is another person’s income and so on.

Who measures national income accounting?

The national‌‌ bureau of statistics, the world bank, ADB and other international organization, IMF, and other private organization measures national income accounting. Each‌ nation‌‌‌ has‌ a Central Bureau of Statistics that measures the GDP of that nation.

Issues of value Accounting

• Living standard

• Policy Formation

• International comparison

• Business call

• Growth of economy

• Income distribution

• Problem of state

• Inflation

Product method:  

In this method, the economy is divided into differential economic sectors to show the proportional contribution made by each sector to the GDP.

There are two approaches to the estimation of GDP under the product method: 

• Final Product method

• Value-added method

The product sector consists of :

Agricultural sector: It includes agricultural products, fishery, and forest products

Industrial sectors: It includes manufacturing, electricity, water supply, and tourism product

Tertiary sector: It includes third-rank sectors like banking, insurance transportation, communication, etc.

Quinary sector: This sector is new to you but scientific research for finding medicine for pandemic diseases, and colonization on mars needs a lot of economic investment.

Final Product methodology

The final product methodology uses the market price of all the ultimate products and services to return to a GDP figure from which value is deduced.

Steps to search out National Income:

Step1: GDP = p1q1 + p2q2 +… + pnqn

Step2: GNP = GDP + web issue financial gain From Abroad

Step 3 NNP =GNP - Depreciation

Finally: National financial gain = NNP - Indirect Taxes

Value-added method:

The value-added method is to deal with the problem of double counting. This method enables us to measure the economy's GDP by adding the difference between the input and output values at each stage of production. 

Value added = Value of output - Cost of intermediate goods.

Let's use a case study to demonstrate the value-added method:

Consider the production of a single commodity chair. Before it can be held in the hands of the consumer as a chair, it must go through several production processes.

Forest wood is harvested and sold for $60. A chair produced by a furniture artisan was sold to a showroom for $90. At last, the proprietor of the showroom sold it to a client for $100. The table calculates the value added, which is determined to be the same as the cost of finished goods.

Stage	Industry	Selling price	Cost price	Value added
I	Wood	60	0	60 – 0 = 60
II	Furniture [Chair]	90	60	90 – 60 = 30
III	Showroom[Sell to consumers]	100	90	100– 90 = 10
	Total			100

Take care when using value-added methods.

No used items allowed                                    

Commission received from used items included.

Nothing intermediate

Self-rent or other people's rent is included.

Measuring National Income by Income Method

According to the income method, GDI = Wages and salaries + Interest + Rent + Dividends + Undistributed corporate profits + Corporate profit tax + Social securities contribution + Income from self-employment + Depreciation value

 GNI = GDI + NFIA

NNI = GNI - Depreciation  = NI

Calculation of gross domestic product

GDP = Consumption + Gross Investment + Government Investment and payment + (exports - imports)

    

The GDP consists:	The GDP excludes:
Consumption Investment in a company Spending by the government on goods and services Gross exports Final products and services that are paid for based on the market value‌ Produced on a country's native soil	Products used by intermediaries. Non-market activities and transfer payments Items that have been used Unpaid work includes work done for the family, volunteering, and other non-monetary compensation. Bartered in goods and services

Gross National Product (GNP)

Gross National Product (GNP) could be a life of the worth of all products and services created from all productive sectors of the country’s residents and businesses for a selected amount of your time. It estimates the worth of the ultimate merchandise and services factory-made by a country’s residents, despite the assembly location.

Economists believe in the value of information to unravel national issues like inflation, financial condition, and balance of payment.

It is additionally outlined because of the total gross domestic product and financial gain from abroad (NFIA).

GNP = C + I + G + ( X – M ) + NFIA

GNP = gross domestic product + NFIA

Where C is Consumption, I stand for investment, G is government expenditure, X is internet exports, and NFIA is net profit attained by domestic residents from overseas investments minus net profit attained by foreign residents from domestic investments.

Features of Gross National Product

GNP is the total value of the ultimate product associated with nursing services in an economy over an amount of your time and financial gain from abroad.

It includes solely that product, that measure created victimization of domestic factors of production.

GNP subtracts the financial gain paid to the foreigners within the economy and adds the financial gain attained from giving services to nationals within the foreign economy.

Calculated at market costs.

Only final products and services are enclosed.

Calculated in gross terms, i.e., while not deducing depreciation capital consumption allowance(the quantity of cash a rustic needs to pay annually to keep up its gift level of economic production)

Transfer of payment, extrajudicial financial gain, used sales and capital gains aren't enclosed.

GNP includes the earnings from all assets in hand by residents. value solely reports what quantity is attained by the country's voters and businesses, despite wherever it's spent within the world.

Net National Product(NNP)

Net national product or NNP is the value of all the finished products and services created by a nation's voters, living domestically and internationally throughout the year.

Net national product is additionally brought up because of the price that's obtained by subtracting depreciation from the gross national product (GNP).

NNP = Gross national product–Depreciation

NNP = C + I + G + (X–M) + NFIA–Depreciation

The depreciation that's calculated refers to the wear and tear and tear of the capital assets; therefore, the depreciation of human capital is determined once there's manpower turnover.

Features of NNP:

Net national product considers all the products, products, and services that are made by the country’s voters, no matter their location. NNP is one in every one of the indications of the economic health of a nation.

National Income (NI)

National financial gain is outlined because the income of things of production like compensation of workers, interest, rents, profits, etc. through participation within the production method then, the total of the financial gain received by factors of production within the sort of rent, wages, interest, and profit are termed value.

Symbolically,

NI=NNP + subsidies-Indirect Taxes

NI = GNP - Depreciation + subsidies-Indirect Taxes

NI=C+G+I+ (X-M) +NFIA-Depreciation-Indirect

 Taxes + subsidies (given by the government for production)

In general, national income is NNP at FC, where FC stands for factor cost. Factor cost refers to the price of items based on production variables such as land cost (rent), labor cost (wage), capital cost (interest), and enterprise cost (profit), among others. In general, it is the cost of goods and services at a factory site, such as a corporation.

Personal‌ Income‌‌ (PI) is‌ calculated‌‌‌‌ as follows: NI + Transfer‌‌ payments‌‌ — Corporate‌ taxes — Undistributed Corporate Profits - Social Security Contribution - Profit Tax

Personal Income - Direct Taxes =  Disposable Income (DI)

National Income (NI) /Population = Per capita income (PCI).