The national income and product accounts provide the aggregate values of the final goods and services that are produced in a country during a specified period of time. They are designed to answer some basic questions: what and how much does our economy produce? Which are the producing sectors? How much is saved and invested? How are the shares of income divided among the factors of production: land, labor, capital and organization?
Approaches to
National Income and Product Estimation:
There are three ways to
estimate
the
aggregate output of an economy.
They
are
Production
or value-added method:
Income method, and
Expenditure
method.
In the production
method, gross output or sales in real terms including
those for exports) of goods and services produced by
the
private (and public, if any) economic enterprises in various industrial sectors,
by the government sector, and by
private households, are
estimated
(including
net
increases in
inventories); then the
purchases of all intermediate goods
used
during the production
process (including imported
ones) are subtracted to obtain the total domestic value added. Therefore, it is the sum of value added of all
producing sectors.
In
the income method, the
aggregate
income before
taxes received
by the factors of production is
estimated by adding remunerations
of
employees and the operating surpluses of all producing units
In the expenditure method, final expenditures for private
consumption, gross private
investment, public
consumption, gross public investment, net increase in inventories, and net
exports (the difference between
exports and imports
of
goods and nonfactor services) are all added together.
Because these three alternative methods of estimating
the
value of domestic production rely on different
data
sources. Statistical discrepancies may
occur. However, the methods are consistent in principle and
they
should produce similar results.
Various Measures of National Income:
GDP vs. GNP/GNI
Market Value of all final goods and
services produced domestically is
GDP GNP/
GNI
= GDP + Net factor income from the
rest of the
World
Market Price vs. Factor Cost
GDP at market price - Indirect Taxes less Subsidies = GDP at factor cost
Gross vs. Net
NDP = GDP - Depreciation
NNP = GNP - Depreciation