National Income Account

national income account are used in economics to estimate total economic activity in a country or region, including gross domestic production (GDP), gross national product (GNP), and net national income (NNI). All are specially concerned with counting the total amount of goods and services produced within some "boundary". The boundary is usually defined by geography or citizenship, and may also restrict the goods and services that are counted. For instance, some measures count only goods and services that are exchanged for money, excluding bartered goods, while other measures may attempt to include bartered goods by imputing monetary values to them.

GDP (Gross Domestic Product) DEF

The dollar value of all final goods, services, and structures produced with in acountrys national borders during a one year period. OR The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory. GDP = C + G + I + NX NX = X-M where: "C" is equal to all private consumption, or consumer spending, in a nation's economy "G" is the sum of government spending "I" is the sum of all the country's businesses spending on capital "NX" is the nation's total net exports, calculated as total exports minus total imports. (NX = Exports - Imports)

GDP by Expenditure Method DEF

A method of estimating gross domestic product (GDP) based on identifying the aggregate expenditures (consumption, investment, government purchases, and net exports) made by the four basic macroeconomic sectors (household, business, government, and foreign). The expenditure method calculates GDP by summing the four possible types of expenditures as follows: GDP = Consumption + Investment + Government Purchases + Net Exports 1. Consumption expenditures: Personal consumption expenditures on goods and services comprise the largest share of total expenditure. Consumption good expenditures include purchases of nondurable goods, such as food and clothing, and purchases of durable goods, such as appliances and automobiles. Consumption service expenditures include purchases of all kinds of personal services, including those provided by barbers, doctors, lawyers, and mechanics. 2. Investment expenditures: Investment expenditures can be divided into two categories: expenditures on fixed investment goods and inventory investment. Fixed investment goods are those that are useful over a long period of time. Expenditures on fixed

investment goods include purchases of new equipment, factories, and other nonresidential housing as well as purchases of new residential housing. Also included in fixed investment expenditures is the cost of replacing existing investment goods that have become worn out or obsolete. The market value of all investment goods that must be replaced in a single year is referred to as the depreciation for that year. Inventory goods are final goods waiting to be sold that firms have on hand at the end of the year. The year-to-year change in the market value of firms' inventory goods is considered investment expenditure because these inventory goods will eventually yield a flow of consumption or production services. 3. Government expenditures: Government expenditures on consumption and investment goods and services are treated as a separate category in the expenditure approach to GDP. Examples of government expenditures include the hiring of civil servants and military personnel and the construction of roads and public buildings. Social security, welfare, and other transfer payments are not included in government expenditures. Recipients of transfer payments do not provide any current goods or services in exchanges for these payments. Hence, government expenditures on transfer payments do not involve the purchase of any new goods or services and are therefore excluded from the calculation of government expenditures. 4. Net exports: Exports are goods and services produced domestically but sold to foreigners, while imports are goods and services produced by foreigners but sold domestically. In the expenditure approach to GDP, expenditures on exports are added to total expenditures, while expenditures on imports are subtracted from total expenditures. Alternatively, one can calculate net exports, which are defined as expenditures on exports minus expenditures on imports, and add the value of net exports to the nation's total expenditures.

GDP by Income Method

The income approach to measuring GDP is to add up all the income earned by households and firms in a single year. OR All final goods and services are produced using factors of production. By summing up the factor payments, we can find the value of GDP. Some adjustments are required to balance the account. Compensation of employees includes the wages, salaries, fringe benefits, Social Security contributions, and health and pension plans. Rent is the income of the property owners. Interest is the income of the money capital suppliers. Proprietors Income is the income of incorporated business, sole proprietorships, and partnerships. Corporate Profits is the income of the corporations stockholders whether paid to stockholders or reinvested. Sum of the above items is the National Income (NI). Adjustments: Indirect business Taxes (general sales taxes, business property taxes, license fees etc.) should be added to NI. They are not considered to be payments to a factor of production, but they are part of total expenditures. Depreciation is another cost, which should be added.

Net foreign factor income (income earned by the rest of the world income earned from the rest of the world) should be added to adjust GNP to GDP. Computing GDP: GDP = Compensation of employees + Rent + Interest + Proprietors Income + Corporate Profits + Indirect business taxes + Depreciation + Net foreign factor income

GDP at Factor Cost

GDP@ factor cost =GDP@ market price + Subsidies -Indirect Taxes Market prices: are the prices at which goods and services are sold in various markets to households and firms. Subsidies: are government expenses that are generally extended to business firms, farmers among other groups to defray their production costs or to reduce prices for consumers. Subsidies are also called negative taxes because they impose expenses on government budgets instead of contributing revenues. Indirect Taxes: are government revenues that result from taxes that are not received directly from the earned incomes of households, businesses etc. Thus sales taxes, highway tolls, excise taxes etc are forms of indirect taxes as opposed to direct taxes that are extracted from earned incomes . Factor costs: are the actual production costs at which goods and services are produced by the firms and industries in an economy. Factor costs are really the costs of all the factors of production such as labor , capital, energy, raw materials like steel etc that are used to produce a given quantity of output in an economy. Factor costs are also called factor gate costs since all the costs that are incurred to produce a given quantity of goods and services take place behind the factory gate ie within the walls of the firms, plants etc in an economy. Thus the term GDP@ factor cost refers to the total final output of all final goods and services produced within the national frontiers of a country by its citizens and the foreign residents who reside within those frontiers that are assessed at production or factor cost prior to leaving their respective factory gates for various markets where they are bought and sold.