Measures of national income and output

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Measures of national income and output A variety of measures of national income and output are used in economics to estimate total economic activity in a country or region, including gross domestic product (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 a
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  Measures of national income and output A variety of  measures of national income and output are used ineconomicsto estimate totaleconomic activity in a country or region, includinggross domestic product( GDP ), gross nationalproduct ( GNP ), andnet national income( NNI ). All are specially concerned with counting the totalamount of goods and services produced within some boundary . The boundary is usually defined bygeography or citizenship, and may also restrict the goods and services that are counted. Forinstance, some measures count only goods and services that are exchanged for money, excludingbartered goods, while other measures may attempt to include bartered goods by imputing monetaryvalues to them. Mr Ian Davies defines development as 'Simply how happy and free the citizens of that country feel.' [1]   Measures of national income and output From Wikipedia, the free encyclopediaJump to:navigation,search  A variety of  measures of national income and output are used ineconomicsto estimatetotal economic activity in a country or region, includinggross domestic product( GDP ), grossnational product ( GNP ), andnet national income( NNI ). All are specially concerned withcounting 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 andservices that are counted. For instance, some measures count only goods and services that areexchanged for money, excluding bartered goods, while other measures may attempt toinclude bartered goods by imputing  monetary values to them. Mr Ian Davies definesdevelopment as 'Simply how happy and free the citizens of that country feel.' [1]   [edit    ] National accounts Main article:National accounts  Arriving at a figure for the total production of goods and services in a large region like acountry entails a large amount of data-collection and calculation. Although some attemptswere made to estimate national incomes as long ago as the 17th century, [2] the systematickeeping of national accounts, of which these figures are a part, only began in the 1930s, in theUnited States and some European countries. The impetus for that major statistical effort wastheGreat Depressionand the rise of Keynesian economics, which prescribed a greater role for the government in managing an economy, and made it necessary for governments toobtain accurate information so that their interventions into the economy could proceed asmuch as possible from a basis of fact.  [edit ] Market value Main article:Market value  In order to count a good or service it is necessary to assign some value to it. The value thatthe measures of national income and output assign to a good or service is its market value ± the price it fetches when bought or sold. The actual usefulness of a product (its use-value) isnot measured ± assuming the use-value to be any different from its market value.Three strategies have been used to obtain the market values of all the goods and services produced: the product (or output) method, the expenditure method, and the income method.The product method looks at the economy on an industry-by-industry basis. The total outputof the economy is the sum of the outputs of every industry. However, since an output of oneindustry may be used by another industry and become part of the output of that secondindustry, to avoid counting the item twice we use not the value output by each industry, butthe value-added; that is, the difference between the value of what it puts out and what it takesin. The total value produced by the economy is the sum of the values-added by everyindustry.The expenditure method is based on the idea that all products are bought by somebody or some organisation. Therefore we sum up the total amount of money people and organisationsspend in buying things. This amount must equal the value of everything produced. Usuallyexpenditures by private individuals, expenditures by businesses, and expenditures bygovernment are calculated separately and then summed to give the total expenditure. Also, acorrection term must be introduced to account for imports and exports outside the boundary.The income method works by summing the incomes of all producers within the boundary.Since what they are paid is just the market value of their product, their total income must bethe total value of the product. Wages, proprieter's incomes, and corporate profits are themajor subdivisions of income. [edit ] The output approach The output approach focuses on finding the total output of a nation by directly finding thetotal value of all goods and services a nation produces.Because of the complication of the multiple stages in the production of a good or service,only the final value of a good or service is included in total output. This avoids an issue oftencalled 'double counting', wherein the total value of a good is included several times innational output, by counting it repeatedly in several stages of production. In the example of meat production, the value of the good from the farm may be $10, then $30 from the butchers, and then $60 from the supermarket. The value that should be included in finalnational output should be $60, not the sum of all those numbers, $100. Thevalues addedateach stage of production over the previous stage are respectively $10, $20, and $30. Their sum gives an alternative way of calculating the value of final output.Formulae:GDP(gross domestic product) at market price = value of output in an economy in a particular year - intermediate consumption   NN P at factor cost = GDP at market price - depreciation +  N FIA (  net factor income fromabroad) - net indirect taxes [3]   [edit    ] The income approach The income approach equates the total output of a nation to the total factor income received by residents of the nation. The main types of factor income are: y   E mployee compensation (= wages + cost of fringe benefits, including unemployment, health,and retirement benefits); y   Interest received net of interest paid; y   R ental income (mainly for the use of real estate) net of expenses of landlords; y   R oyalties paid for the use of intellectual property and extractable natural resources. All remaining value added generated by firms is called the residual  or  profit. If a firm hasstockholders, they own the residual, some of which they receive asdividends. Profit includesthe income of theentrepreneur - the businessman who combines factor inputs to produce agood or service.Formulae:  N DP at factor cost = Compensation of employees +  N et interest + Rental & royalty income +Profit of incorporated and unincorporated firms + Income from self-employment.  N ational income =  N DP at factor cost +  N FIA (net factor income from abroad). [edit    ] The expenditure approach The expenditure approach is basically an output accounting method. It focuses on finding thetotal output of a nation by finding the total amount of money spent. This is acceptable, because like income, the total value of all goods is equal to the total amount of money spenton goods. The basic formula for domestic output combines all the different areas in whichmoney is spent within the region, and then combining them to find the total output. GDP = C + I + G + ( X - M ) Where: C = household consumption expenditures / personal consumption expenditures I =gross private domestic investment  G = government consumption and gross investment expenditures X = gross exports of goods and services M = gross imports of goods and services  N ote: ( X - M ) is often written as X N , which stands for net exports   [edit ] Definitions The names of the measures consist of one of the words Gross or  N et , followed by one of the words  N ational or Domestic , followed by one of the words Product , Income , or  Expenditure . All of these terms can be explained separately. Gross means total product, regardless of the use to which it is subsequently put. Net means Gross minus the amount that must be used to offset depreciation  ie., wear-and-tear or obsolescence of the nation's fixed capital assets. Net gives an indication of how much product is actually available for consumption or new investment. Domestic means the boundary is geographical: we are counting all goods and servicesproduced within the country's borders, regardless of by whom. National means the boundary is defined by citizenship (nationality). We count all goodsand services produced by the nationals of the country (or businesses owned by them)regardless of where that production physically takes place.The output of a French-owned cotton factory in Senegal counts as part of the Domesticfigures for Senegal, but the National figures of France. Product , Income , and E xpenditure refer to the three counting methodologiesexplained earlier: the product, income, and expenditure approaches. However the terms areused loosely. Product is the general term, often used when any of the three approaches was actuallyused. Sometimes the word Product is used and then some additional symbol or phrase toindicate the methodology; so, for instance, we get Gross Domestic Product by income , GDP (income) , GDP(I) , and similar constructions. Income specifically means that the income approach was used. E xpenditure specifically means that the expenditure approach was used.  N ote that all three counting methods should in theory give the same final figure. However, in practice minor differences are obtained from the three methods for several reasons, includingchanges in inventory levels and errors in the statistics. One problem for instance is that goodsin inventory have been produced (therefore included in Product), but not yet sold (thereforenot yet included in Expenditure). Similar timing issues can also cause a slight discrepancy between the value of goods produced (Product) and the payments to the factors that producedthe goods (Income), particularly if inputs are purchased on credit, and also because wages arecollected often after a period of production. [edit ] GDP and GNP Main articles:GDPandGNP  Gross domestic product (GDP) is defined as the value of all final goods and services produced in a country in 1 year . [4]  
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