Topics: Gross domestic product, Economics, Measures of national income and output Pages: 122 (25334 words) Published: April 15, 2014


One of the basic questions facing economics centers on whether the total output of goods and services is growing from year to year or it remains static. This question is very important because countries are keenly interested in the performance of their economy. National income estimates enable countries to calculate the total production of goods and services in a year. The lecture also focuses on the measurement of national income and their problems, uses and limitations of national income statistics and elementary theory of income determination.

Meaning of National Income

National income can be defined as the monetary value of all the final goods and services that are produced in an economy within a given period of time, usually a year. Final goods are goods that are ultimately consumed rather than used in the production of another good. For example a car sold to a consumer is a final good; the components such as tires sold to the car manufacturer are not; they are intermediate goods used to make the final good. If the same intermediate goods were included too, this would lead to double counting. For example, the value of the tires would be counted once when they are sold to the car manufacturer, and again when the car is sold to the consumer.

The national income of a country can be measured in three different ways, viz the Income Approach, the Output Approach and the Expenditure Approach. The use of any of these approaches produces the same result if carefully implemented. The measurement and analysis of the total output produced in an economy is known as social accounting.

National income Concepts
In national income accounting, economists and planners are usually interested in various national income concepts such as, Gross Domestic Product (GDP), Gross National Product (GNP), Net National Product (NNP), and Disposable Income (Yd). These concepts are considered in turn.

Gross Domestic Product:
The gross domestic product of a country is the monetary value of all the final goods and services produced within the domestic territory of a country in a specific period, usually a year, irrespective of whether those who produced them are citizens or foreigners.

Gross National Product:
This is the main measure of the total output. It is at times; simply referred to as National Income (NI). The Gross National Product of a country is the money value 1

of all the final goods and services produced by nationals or citizens of a country (in a specific period, usually a year) irrespectively of where they reside. Taking Nigeria as a specific example, the GNP of Nigeria in a particular year, say 1990 is the money value of all finished goods and services produced by Nigerians living in Nigeria and those in other countries in 1990. The gross national product can simply be regarded as the gross domestic product plus the net property income from aboard, i.e. GNP = GDP + NPA. Where GNP is as preciously defined and NPA stands for Net Property Income from abroad. The net income earned from abroad is the difference between the income which citizens, firms or the government of a country earn abroad and income payable to foreigners on account of their investment in the domestic country. If NPA is positive then GNP > GDP but if NPA is negative, then GDP < GNP.

Net National product (NNP):
The net national product of country is equal to the gross national product minus capital consumption allowance or depreciation. In order to provide for the wear and tear in the value of capital goods used in production of the national output, the amount used up, of the wear and tear of productive assets is usually set aside by deducting it from the value of the national output produced. The amount used up or the wear and tear of assets is what an accountants referred to as depreciation while an economist, on the other hand, refers to it as capital consumption allowance.

Disposable Income...
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