GBE5-National Income

National income, broadly speaking, refers to ‘total national output’ or ‘value of a nation’s output’ during a specific (usually one year). ...

National income, broadly speaking, refers to ‘total national output’ or ‘value of a nation’s output’ during a specific (usually one year). There are three different ways of looking at the value of a nation’s output,viz., Gross National Product(GNP), Gross National Income (GNI) and Gross National expenditure (GNE) represented by output Total. Income Total and Expenditure Total respectively:

1. GNP is the sum of value added of all firms in same period, that is total value of final goods and services produced. GNP is a monetary measure because there is no other way of adding up different sorts of goods and services produced except with their money prices.

2. GNI values national output as a sum total of payments made to the factors of production for their services in production or alternatively, the earnings received by various factors.

3. GNE values national output by taking the value of expenditure of goods and services produced(that is, aggregate expenditure on consumption and investment0.

The terms “Gross Nation Product, Gross National Income and Gross National Expenditures may be used synonymously. In principle, these three variants will always be equal, that is GNP = GNI = GNE. However, in practice, for some statistical data problem, this may not happen, and statistical discrepancy may arise.

Measuring Nation Income:
1.Product Method.
2.Income Method.
3.Expenditure Method.

Production Method:

This method views national income from the output side. The production method is also known as value Added Method. Net Output Method or simply Output method. This method consists of finding out the Net Value of all commodities and services produced in various sectors of the economy during a year and adding them up. The total obtained is called the Final Products total.

Income Method:

This method is also called Factor Income Method. Factor share Method. Income Distributed Method or National Income by Distributive shares method. In this method, we calculate national income from distribution side. In other words, this method measures the national income after it has been distributed and appears as income earned or received by individuals of the country.

According to this method national income is obtained by totaling all the incomes according to the various factors of production used in production national product. Thus national income is calculated for example by adding up the rent of land, wages and salaries of employees, profit of entrepreneurs, interest on capital and income of self-employed people.

Expenditure Method:

National income under this method, is arrived at by adding up all the expenditure made on the goods and services during the specific period. As such, GNP is found out by totaling:

1. Personal consumption Expenditure©, that is, total of private individuals expenditure on consumption of consumer goods and services.

2. Domestic private Investment(I) that is, total of private business spending on new investments, replacement and renewals (that is, expenditure on plants & equipment):

3. Net Export of Goods and services (X-M), also called loosely as foreign investments: in other words, surplus of all the goods and services we provide to foreigners over and above what they provide to us.

The key equation thus is:

                     GNP =C + I + (X-M)+G

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GBE5-National Income
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