NATIONAL INCOME
National income is the sum of money value of net flow of all the goods and services produced by normal residents of a country during a period of account.
According to Central Statistical Organization (CSO)
‘National income is the sum of factor incomes earned by normal residents of a country in the form of wages, interest and profit in an accounting year.’
National product is the net output of commodities and services flowing during the year from the country’s productive system into the hands of ultimate consumers or into the net addition to the country’s capital goods.
Methods of Measuring National Income
In every economy the circular flow of production, income and expenditure remains in operation continuously due to the economic activities. Production generates income which leads to the creation of demand for goods and services and hence expenditure. National income can be measured at every stage of circular flow of production, income and expenditure. At production stage net value of final goods and services produced in the country in a year is calculated. It also includes net factor income earned from abroad. At income level net annual factor income is added along with net factor income from abroad. At expenditure level, national income is measured by adding the net value of final expenditure and the net factor income from abroad. Thus there are three methods of measurement of national income:
1. Product Method or Value Added Method
2. Income Method
3. Expenditure Method
National Income
Product Method or Value Added Method
This is also known as the ‘Inventory Method’ or ‘Commodity Service Method’. This method approaches national income from the output side. According to this method the economy is...
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...ountry depends upon the nature and condition of the economy as well as the purpose of undertaking this exercise? The best way to arrive at national income will be to employ all these three methods so as to permit their cross- checking ensuring greater accuracy and throwing more light on details.
Difficulties in Calculation of National Income
Although all methods are used almost in all countries to calculate national income, yet the calculation is a complex affair and is best with conceptual and statistical difficulties. Kuznets mentions the following difficulties:
• Difficulty of defining the nation
• Non-marketed services
• Inapplicability of any one method
• Which stage to choose
• Paucity of statistics
• How to avoid double counting
• Identification of transfer payments
• Self-consumed production
• Multiple occupations
• Incorrect statistics
“GDP measures the monetary value of final goods and services—that is, those that are bought by the final user- produced in a country in a given period of time (a quarter or a year). It counts all of the output generated within the borders of a country.” (International Monetary Fund. n.d.)
Personal income is considered to be a person’s total earnings which can be obtained through wages and salaries, personal business activities, social aid and investment. The choice to invest one’s finances rather than spend on consumption has an overall impact of increasing income as a result of future cash inflows from the invest...
Gross domestic product (GDP) is one of the best ways to measure how a country’s economy is doing. A main component in figuring the GDP is personal consumption expenditures. Personal consumption expenditures accounts for about two-thirds of domestic
gross domestic product – the total value of services and goods that were produced within the nation’s borders by the people in a course of one year, which excludes the income earned from abroad
“GDP is the most important concept of national income is Gross Domestic Product. Gross domestic product is the money value of all final goods and services produced within the domestic territory of a country during a year.” (Thapa.R)
The economy concept or theory related to the article is the Gross Domestic Product. Gross Domestic Product (GDP) measures the commercial value of the final goods and services that are produced in a country within a given period of time. It calculates all of total of the output such as goods and services that are produced only inside the border of one country. GDP includes only goods and services that are produced for a purpose which is to be sold in the market. However, it does not include items that are produced at home and also is used or consumed at home and never enter any economy market. It also does not included illicit and illegal goods and services such as illegal drugs and items in the market. For example, work
Gross Domestic Product (GDP) is the market value of all final goods and services produced by factors of production within a country in a given period of time. It can be calculated using either the income, output, or expenditure method as illustrated on the circular flow of income diagram below.
In the United States, accumulation of material goods as well as wealth is very valued and individuals are highly aware of exactly how much money they earn. The system is transparent and democratic. However, there is an extreme difference between how much money someone earns in wages and other gains and how much they actually go home with. The difference between gross and net income originates in the system of taxation based on income earned. Since the income tax has existed, the income tax code has become increasingly more complex and difficult to understand. Businesses and individuals have suffered at the difficulties and costs of complying with the income tax. There are many other ways a government can collect taxes, the income based tax system does not stand alone as the only option for collecting tax revenue necessary to fund the federal government. Instead of taxing the money that a business or individual earns the government could tax money that they spend.
Above are methods through which we measure national income. If we use any method we will obtain same result no matter which method we use, we will add value of finals goods and services.
In the closed economy, the output is engaged in the domestic country and total expenditure is divided into three parts; consumption (C) investment (I) and government expenditure (G). In a simple notation,
The circular flow of income is an open model of the Australian economy which represents the flow of money between the five sectors. In an economy, the state of equilibrium is achieved when the total leakages are equal to the total injections. Changes in expenditure and output can lead to equilibrium income becoming regained in the economy, which is where leakages are equal to injections and the circular flow of income experiences no change in size. The equilibrium level of income refers to the level of income, output and employment at which the aggregate demand and the aggregate supply in an economy are equal.
Seen another way, this apparatus measures the "genuine"— that is, balanced for inflation—estimation of income after some time. Note that the segments of the CPI don't change in cost at the same rates or even fundamentally move the same course. For instance, the costs of auxiliary training and lodging have been expanding a great deal more quickly than the costs of different merchandise and benefits; in the interim fuel costs have risen, fallen, risen again and fallen once more—every time strongly—in the previous
The Gross Domestic Product (GDP) is the total market value of in a country’s output. The GDP is the total market value of all final goods and services produced by factors in within given period of time that located in the country doesn’t matter they are citizens or foreign-owned companies. Hence, the GDP is the best way to measure the country economy.
In this report I will be writing about the differences between capital items and revenue items of expenditure and income. I will be describing what each term is and then give examples of how they are used along with what account they can be found in. At the end of the report I will conclude the information with the main differences between capital and revenue income and the differences between capital and revenue expenditure.
National income is a measure of the value of the output of the good and