The purpose of national income accounting is to obtain some measure of the performance of the aggregate economy.
National Income
The purpose of national income
accounting is to obtain some measure of the performance of the aggregate
economy. The major concepts used in the national income calculation are Gross
Domestic Product (GDP), Gross National Product (GNP), Net National Product
(NNP), personal income and Disposable income.
Gross Domestic Product is the
total market value of all final goods
and services currently produced within the domestic territory of a country in a
year. It measures the market value of annual output of goods and services
currently produced and counted only once to avoid double counting. It includes
only final goods and services. It includes the value of goods and services
produced within the domestic territory of a country by nationals and non
nationals.
Gross National Product is the
market value of all final goods and services produced in a year. GNP includes
net factor income from abroad. GNP = GDP + Net factor income from abroad (income
received by Indian’s abroad – income paid to foreign nationals working in
India)
Net National Product at market
price is the market value of all final
goods and services after providing for depreciation.
NNP = GNP
– Depreciation
Depreciation
means fall in the value of fixed capital due to wear and tear.NNP at
factor cost is called as National Income: National
income is the sum of the wages, rent,
interest and profits paid to factors
for their contribution to the production of goods and services in a year. Nnp = Nnp
(Market Price) – Indirect Tax + SubsidiesPersonal income (PI) is the
sum of all incomes earned by all individuals /
households during a given year.
Certain incomes are received but not earned such as old age pension etc.,Pi = Ni – Social Security Contribution – Corporate Income Tax –
Undistributed Corporate Profits + Transfer Payments.Disposable
income is calculated by deducting the
personal taxes like income tax,
personal property tax from the personal income (PI). Disposable Income = Personal
Income – Personal Taxes = Consumption + Saving Supernumerary
income: the expenditure to meet necessary
living costs deducted from
disposable consumer income is called as supernumerary income. The economy is divided into
different sectors such as agriculture, fisheries, mining, construction,
manufacturing, trade, transport, communication and other services. The gross
production is found out by adding up the net values of all the production that
has taken place in these sectors during a given year. This method helps to understand the
importance of various sectors of the economy.
Tags : Managerial Economics - Macro Economics
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