National Income Accounting

1. National Income Accounting

3. National Income Estimation • Economic performance • Economic analysis • Forecasting • Indicator of Nation’s Economy • As a means of indicating changes in a country’s standard of living • To indicate changes in economic growth of a country • As a means of comparing the economic performance of different countries

4. World Bank 2005 Up to US $ 875 = Low income countries US $ 876 – US $ 3465 = Lower Middle US $ 3466 – US $ 10725 = Upper Middle More than US $ 10726 = high income

5. Measurement of National Income • Income Approach  NNP at factor cost OR National Income • Output Approach  GDP at factor cost • Expenditure Approach  GDP at market Prices

6. Expenditure Approach C+I+G+X-M GDP at market price - Indirect sales tax + Indirect subsidies  GDP at factor cost + Net income from abroad  GNP at factor cost - Depreciation  NNP at factor cost  Output Approach Factor Income-from abroad Factor Income paid abroad  Income Approach  W+I+R+P

7. Expenditure Approach C+I+G+X-M GDP at market price - Indirect sales tax + Indirect subsidies  GDP at factor cost + Net income from abroad  GNP at factor cost - Depreciation  NNP at factor cost  Output Approach Factor Income-from abroad Factor Income paid abroad  Income Approach  W+I+R+P

8. Income Approach • W+I+R+P = NNP at factor cost • Profits are stated net of depreciation / capital consumption allowances • If the figures exclude net income from abroad, NDP at factor cost can be obtained. • NDP at factor cost + Net income from abroad =

9. Output Approach • The total value of the final goods and services produced by the primary / secondary / tertiary industries • In order to avoid double counting, the value-added method is adopted to exclude intermediate goods. • GDP at factor cost + Indirect Taxes – Indirect Subsidies = • Distinguish between Indirect / Direct / Business / Personal Taxes

10. Expenditure Approach • People spend their income. Thus, the total expenditure on final goods and services must be equal to the total value of final goods and services produced domestically. • Any output that is not sold to consumers is bought by producers in the form of unintended inventory investment. • C+I+G+(X-M) = Aggregate / Total expenditure

11. Items excluded from National Income Accounting • Second-hand goods • Intermediate goods • Non-marketed goods / services Volunteer work / Housework • Unreported / Illegal market transactions

12. Merits & Uses of National Income Statistics • Reflecting & comparing the standards of living of different countries Per capita real GNP  standard of living • Providing information to the government and firms for economic planning • Reflecting the economic growth of a country % change in real GNP over a period of time

13. Limitations of National Income Statistics • Factors that may understate the standard of living / the welfare • Exclusion of the value of leisure Same Q produced with fewer working hours  higher welfare • Exclusion of non-marketed / unreported transactions

14. Limitations of National Income Statistics • Factors that may overstate the standard of living / the welfare • Undesirable Side-effects of Production Air pollution / traffic congestion /… Understate the real / social costs to society  externality /divergence between social costs & private costs

15. National Income concepts • GDP at Market Price • GDP at Factor Cost • GNP at Market Price • GNP at Factor Cost • NDP at Market Price • NDP at Factor Cost • NNP at Market Price • NNP at Factor Cost • Personal Income • Disposable Income

16. NNP mp GNP mp GNP fc - depreciation -net indirect taxes -net income from abroad - depreciation GDP mp -net indirect taxes -net income from abroad -net income from abroad NNP fc -net indirect taxes - depreciation -net income from abroad NDP mp NDP fc GDP fc -net indirect taxes - depreciation

17. National Income Estimates in India

22. Thanks