Measuresnational incomeoutput
Measuresnational incomeoutputusedeconomicsestimatevaluegoodsservices producedan economy. They usesystemnational accounts or national accounting developed by Kuznets in1960s. Some ofmore common measuresGross National Product (GNP), Gross Domestic Product (GDP), Net National Product (NNP),Net National Income (NNI).
Thereat least two or three different wayscalculating these numbers. The expenditure approach determines aggregate demand, or Gross National Expenditure, by summing consumption, investment, government expenditurenet exports. Onother hand,income approach andclosely related output approach can been seen assummationconsumption, savingstaxation. The three methods must yieldsame results becausetotal expenditures on goodsservices (GNE) must by definition be equal tovalue ofgoodsservices produced (GNP) which must be equal tototal income paid tofactors that produced these goodsservices (GNI). (GNP=GNI=GNE by definition)
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2 Gross Domestic Product 3 DepreciationNet National Product 4 Realnominal values 5 National incomewelfare 6 Sourceseconomic data 7 External links |
Gross National Product
Gross National Product (GNP) istotal valuefinal goodsservices produced inyear by domestically owned factorsproduction.
Final goodsgoods thatultimately consumed rather than used inproductionanother good. For example, car sold toconsumer isfinal good;components such as tires sold tocar manufacturernot; theyintermediate goods usedmakefinal good. The same tires, if sold toconsumer, would befinal good. Only final goodsincluded when measuring national income. If intermediate goods were included too, this would leaddouble counting;example,value oftires would be counted once when theysold tocar manufacturer,again whencarsold toconsumer.
Only newly produced goodscounted. Transactionsexisting goods, such as second-hand cars,not included, as these do not involveproductionnew goods.
Incomecounted as partGNP accordingwho ownsfactorsproduction rather than whereproduction takes place. For example, incase ofGerman-owned car factory operating inUS,profits fromfactory would be counted as partGerman GNP rather than US GNP becausecapital usedproduction (the factory, machinery, etc.)German owned. The wages ofAmerican workers would be partUS GNP, whilewagesany German workers onsite would be partGerman GNP.
Gross Domestic Product
Gross Domestic Product (GDP) istotal valuefinal goodsservices produced withincountry's borders inyear.
GDP counts income accordingwhere itearned rather than who ownsfactorsproduction. Inabove example, all ofincome fromcar factory would be counted as US GDP rather than German GDP.
To convert from GNPGDP you must subtract factor income receipts from foreigners that correspondgoodsservices produced abroard using factor inputs supplied by domestic sources. To convert from GDPGNP you must add factor input paymentsforeigners that correspondgoodsservices produced indomestic country usingfactor inputs supplied by foreigners.
GDP isbetter measure ofstateproduction inshort term. GNP isbetter when analysing sourcesusesincome.
DepreciationNet National Product
Not allGNPavailableproduce final goodsservices - partit represents output thatset asidemaintainnation's productive capacity. Capital goods, such as buildingsmachinery, lose value over time dueweartearobsolescence. Depreciation measuresamountGNP that must be spent on new capital goodsoffset this effect.
InIncome Approach:
- Net National Product (NNP)GNP minus depreciation
- Net National Income (NNI)NNP minus indirect taxes
- Personal Income (PI)NNI minus retained earnings, corporate taxes, transfer payments,interest onpublic debt
- Personal Disposable Income (PDI)PI minus personal taxes, plus transfer payments.
- personal savings (S) plus personal consumption (C) = personal disposable income (PDI)
- PDI plus personal taxes paid minus transfer payments received = personal income (PI)
- PI plus retained earnings plus corporate taxes plus transfer payments plus interest onpublic debt = net national income (NNI)
- NNI plus indirect taxes = net national product (NNP)
- NNP plus depreciation = gross national product (GNP)
Realnominal values
Nominal GNP measuresvalueoutput duringgiven year usingprices prevailing during that year. Over time,general levelprices rise dueinflation, leadingan increasenominal GNP even ifvolumegoodsservices producedunchanged.
Real GNP measuresvalueoutputtwo or more different years by valuinggoodsservices produced atsame prices. For example, GNP might be calculated2000, 20012002 usingprices prevailing2002all ofcalculations. This givesmeasurenational income whichnot distorted by inflation.
National incomewelfare
GNP per personoften used asmeasurepeople's welfare. Countrieshigher GNP often score highly on other measureswelfare, such as life expectancy. However, thereserious limitations tousefulnessGNP asmeasurewelfare:
- MeasuresGNP typically exclude unpaid economic activity, most importantly domestic work such as childcare. This can leaddistortions;example,paid childminder's income will contributeGNP, whereas an unpaid mother's time spent caringher children will not, even though theyboth carrying outsame economic activity.
- GNP takes no account ofinputs usedproduceoutput. For example, if everyone workedtwicenumberhours, then GNP might roughly double, but this does not necessarily mean that workersbetter off aswould have less leisure time. Similarly, impacteconomic activity onenvironmentnot directly taken into accountcalculating GNP.
- ComparisonGNP from one countryanother may be distorted by movementsexchange rates. Measuring national income at purchasing power parity can helpovercome this problem.
Sourceseconomic data
