National Income is the total amount of
wealth produced within a country over
a specific time period. For convenience and comparison purposes, national
income is usually measured over a calendar year. The symbol Y is used to
signify National Income.
National Income may be calculated in three ways:
1. by adding up the total value of all types of
production (
output method)
2. by adding up all the incomes received by the individuals and firms (
income
method)
3. by adding up the total
value of all sales of goods and services (
expenditure
method)
The Output Method
1. Primary Sector Production
2.
Industrial Production
3. Distrubution, Transport, and Communications Output
4. Government Services
5. Professional Services and Entertainment
6. Adjustment for Stock
Appreciation
7. Adjustment for Financial Services
8. + Net Factor Income from Rest of World
9. = Net National Product At Factor Cost (Y)
10. +
Depreciation
11. = Gross National Product at Factor Cost
12. + Taxes on Expendicture
13. -
Subsidies
14. = Gross National Product at Market Prices
Notes.
i.When calculating total production, care must be taken to avoid double
counting.
ii.Any capital consumed during the course of of production must not be included.
Producers price their output to include an element of compensation for capital
depreciation.
6.This is the rise or fall in value of stocks due to price changes alone.
This increase in value gives rise to an element of
profit which does not
arise from the production process and thus must be excluded.
7.Excess of interest of
dividends received by financial institutions over
payments of interest to depositors.
8.This is the sum of returns to foreign owned factors of production used
in a country, and the returns to domestically owned factors in use abroad.
The Income Method
1. Agricultural Income:
a. Income from Self-employment and Trading Income
b. Wages and Salaries2. Non-agricultural Domestic Income:
a. Wages and Salariesb. Other Income
c. Actual and
Imputed Rent
3. Adjustment for Stock Appreciation
4. Adjustment for Financial Services
5. + Net Factor Income From Rest Of World
6. = Net National Product at Factor Cost (Y)
Notes
i.Transfer payments are excluded, as they are simply the redistribution of
wealth. Transfer payments include educational grants and unemployment benefit.
ii.Incomes in kind must be included. Incomes in kind are incomes received
in non-monetary form e.g. company car.
2b.This includes trading profits of companies etc.
2c.Includes estimated rent for owner-occupied housing.
The Expenditure Method
1. Consumption Expenditure
2. Investment Expenditure
3. Government Expenditure
4. + Imports
5. - Exports
6. = Gross Domestic Product at Market Prices
7. + Net Factor Income From Rest of World
8. = Gross National Product at Market Prices
9. - Indirect Taxes
10. + Subsidies
11. = Gross National Product at Factor Cost
12. - Depreciation
13. = Net National Product at Factor Cost (Y)
Notes
1.Total personal expenditure on consumer goods and services.
2.Gross Domestic
Capital Formation eg. building of airports, hydro-electric
schemes, office equipment etc
-
Only the Income Method gives the National Income figure directly. The other
two methods give the figure GNP at market prixes. This can easily be converted
to Net National Product at Factor Cost.