National income Accounting

NATIONAL INCOME ACCOUNTING

National income accounting may be defined as the ways or means of computing or determining the money value of the total volume of goods and services produced in a given country over a period of time, usually a year.

DEFINITION OF CONCEPTS

1. NATIONAL INCOME (NI):

It is the estimated monetary value of all goods and services produced in a country during a specified period of time, usually a year. It is the sum total of all profits, interests, wages and rent received within a year.

2. GROSS DOMESTIC PRODUCT (G.D.P)

This is the total value (in monetary terms) of all final goods and services produced in a country within a period of one year, by all the residents of the country regardless of whether they are citizens or foreigners.

It emphasises the geographic aspect of production; that is, value of output within a country. It therefore excludes the earning of citizens or their investments abroad but includes the earnings of foreigners or earnings from foreign investment in the country.

In calculating G.D.P., no allowance is made for depreciation. GDP is the same as Gross Domestic Income. This is because the income received for producing goods and services must be equal to the value of goods and services (the product)

GDP = NDP + Depreciation

GDP = GNP – Net income from abroad

3. GROSS NATIONAL PRODUCT (G. N. P)

This is the total monetary value of goods and services, produced by the citizens of a country (including income from their investments) both at home and abroad.

It includes the earnings of the citizens or their investment in other countries but excludes the earnings of foreigners or their investment in the country.

In this case also, no allowance is made for depreciation.

GNP = GDP + Net Income from abroad – output of foreigners

4. NET DOMESTIC PRODUCT (N.D.P)

This is the GDP less depreciation.

In this case, allowances are made for the, wear and tear of capital (i.e. capital consumption).

It can therefore be defined as the total monetary value of all final goods and services produced by all the residents of a country and earnings from their investments (whether citizens or foreigners) after allowances have been made for depreciation.

NDP=GDP-Depreciation.

5. NET NATIONAL PRODUCT (N.N.P)

This is the Gross National product less depreciation.

It is therefore the total monetary value of all final goods and services, produced by all the citizens of a country and income from their investments (whether at home or abroad) after allowance has been made for depreciation.

NNP = GNP – Depreciation

6. PERSONAL INCOME

It is the earnings of an individual (in monetary terms) for taking part in the production of goods or for services, either by him or his property.

It includes wages to labour for its services, interest received by capital owner, rent paid to the owner of the land, and profit received by an entrepreneur.

7. DISPOSABLE INCOME

This is the part of income which is left after personal income tax is deducted; that is personal income less taxation.

It is the amount left for spending and saving

Y^d = Y – T

Where Y^d = Disposable income

Y = Income

T = Tax

8. INCOME PER CAPITA

This is the income per head of the population. It is the national income divided by the total population of a country.

Per capital income = National Income

Population

9. REAR INCOME

This is National income expressed in term of general level of prices with prices of a particular year taken as base.

Increase in price may affect the NNP in a particular year.

Real NNP = NNP for current year x Base year index

Current year index

10. STANDARD OF LIVING

This is refers to the level of welfare attained by individuals in a country at a particular time.

This level of welfare is measured in terms of the quantity and quality of goods and services consumed within a period of time.

For example, it is measured in terms of the quantity and quality of food eaten, the type of house one lives in, the quality of educational facilities used, the availability of medical facilities etc. The higher the quantity and quality of goods and services consumed, the higher the standard of living and vice versa,

The standard of living also depends on the prices of goods and services. If the prices of goods and services are high, people will obtain them in fewer quantities and their standard of living will be low and vice versa.

Income per capital is therefore one of the indices for measuring differences in the standards of living between countries.