MEASURES OF NATIONAL INCOME AND OUTPUT

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'Measures of national income and output' are used in economics to estimate the value of goods and services produced in an economy. They use a system of 'national accounts' or 'national accounting' first developed during the 1940s. Some of the more common measures are 'Gross National Product (GNP)', 'Gross Domestic Product (GDP)', 'Gross National Income (GNI)', 'Net National Product (NNP)', and 'Net National Income (NNI)'. Formerly in the Soviet Union and its friendly states COMECON, Net Material Product (NMI) was estimated (NNP-Services).
In relation to greening the national accounts the United States Congressional Budget Office concludes "a gradual process of modifying measures of national economic performance is consistent with the history and development of the national accounts."[1]
There are various ways of calculating these numbers. The 'expenditure approach' determines aggregate demand, or Gross National Expenditure, by summing consumption, investment, government expenditure and net exports. The 'income approach' and the closely related 'output approach' sum wages, rents, interest, profits, nonincome charges, and net foreign factor income earned. The three methods must yield the same result because total expenditures on goods and services (GNE) must by definition equal the value of goods and services produced (GNP) which must equal total income paid to the factors that produced the goods and services (GNI).
In fact, minor differences are obtained from the various methods due to changes in inventory levels. This is because goods in inventory have been produced (and therefore included in GDP), but not yet sold (and therefore not yet included in GNE). Similar timing issues can also cause a slight discrepancy between the value of goods produced (GDP) and the payments to the factors that produced the goods, particularly if inputs are purchased on credit.

Contents

Gross National Product

In the Income Approach

National income and welfare

National accounting formulae (expenditure approach)

United States income and output

See also

External links

Gross National Product

'Gross National Product (GNP)' (a close value is Gross National Income, equal to GNP + depreciation allowances) is the total value of all final goods and services produced by a country's factors of production and sold on the market in a given time period. For example, because Mercedes-Benz is owned by Germans, its profits from its Belgian production count towards German GNP, but because those activities take place in Belgium they count toward Belgian GDP. A UK taxpayer working in Paris would have his income count toward UK GNP but his output would be part of French GDP.
'Nominal GNP' measures the value of output during a given year using the prices prevailing during that year. Over time, prices may rise due to inflation, leading to an increase in nominal GNP even if the volume of goods and services produced is unchanged. GNP does not include goods produced on a subsistence level, i.e. farmers who eat their own products do not have their crops included in the GNP.
'Real GNP' measures the value of output in two or more different years by valuing the goods and services adjusted for inflation. For example, if both the "nominal GNP" and price level doubled between 1995 and 2005, the "real GNP" would remain the same. For year over year GNP growth, "real GNP" is usually used because it gives a more accurate view of the income and output.
'Gross Domestic Product (GDP)' is the total value of final goods and services produced within a country's borders in a year. GDP counts income according to where it is earned rather than who owns the factors of production. In the above example, all of the income from the (German-owned) car factory would be counted as Belgian GDP rather than German GDP. To convert from GNP to GDP you must subtract net factor income receipts from foreigners that correspond to goods and services produced abroad using factor inputs supplied by domestic sources.

In the Income Approach

★ 'Net National Product (NNP)' is GNP minus depreciation

★ Net National Income (NNI) is NNP minus indirect taxes

★ Personal Income (PI) is NNI minus retained earnings, corporate taxes but it includes transfer payments, and interest on the public debt

★ Personal Disposable Income (PDI) is PI minus personal taxes.
S = personal savings

C = personal consumption

PDI = personal disposable income

T_P = personal taxes paid

TP_P = personal transfer payments received via governments

PI = personal income

RE = retained earnings

T_C = corporate taxes

TP_C = corporate transfer payments from governments

I_G = interest on the public debt

NNI = net national income

T_IN = indirect taxes

NNP = net national product

D = depreciation

National income and welfare

GNP per person is often used as a measure of a person's welfare. Countries with higher GNP may score highly on other measures of welfare, such as life expectancy. However, there are serious limitations to the usefulness of GNP as a measure of welfare:

★ Measures of GNP typically exclude unpaid economic activity, most importantly domestic work such as childcare. This leads to distortions; for example, a paid childminder's income contributes to GNP, but an unpaid parent's time spent caring for children will not, even though they are both carrying out the same economic activity.

★ GNP takes no account of the inputs used to produce the output. For example, if everyone worked for twice the number of hours, then GNP might roughly double, but this does not necessarily mean that workers are better off as they would have less leisure time. Similarly, the impact of economic activity on the environment is not measured in calculating GNP.

★ Comparison of GNP from one country to another may be distorted by movements in exchange rates. Measuring national income at purchasing power parity may overcome this problem at the risk of overvaluing basic goods and services, for example subsistence farming.

★ GNP does not measure factors that affect quality of life, such as the quality of the environment (as distinct from the input value) and security from crime. This leads to distortions - for example, spending on cleaning up an oil spill is included in GNP, but the negative impact of the spill on well-being (e.g. loss of clean beaches) is not measured.

★ GNP is the mean wealth rather than median wealth. Countries with a skewed income distribution may have a relatively high per-capita GNP while the majority of its citizens have a relatively low level of income, due to concentration of wealth in the hands of a small fraction of the population. See Gini coefficient.
Because of this, other measures of welfare such as the Human Development Index (HDI), Index of Sustainable Economic Welfare (ISEW), Genuine Progress Indicator (GPI) and Sustainable National Income (SNI) are used.

National accounting formulae (expenditure approach)

C = Personal consumption expenditures

I = Gross private domestic investment

G = Government consumption expenditures

X = Gross exports of goods and services

M = Gross imports of goods and services

'Total = Gross Domestic Product (GDP)'

NR = + or - Net income from assets abroad (net income receipts)

'Sub Total = Gross National Product (GNP)'

CC = Depreciation

IBT = Indirect business taxes

NDP = Net Domestic Product

NI = National Income

PI = Personal Income

DI = Disposable income

Note: (X - M) is often written as "NX," which stands for "Net Exports"

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

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

GNI = C + I + G + (X - M) + NR - IBT

NI = C + I + G + (X - M) + NR - IBT - CC

'The Flow of Income'

NDP = GNP - CC

NI = NDP - IBT + net foreign factor income

PI = NI - corporate taxes - retained earnings - social security + transfer payments + net interest

DI = PI - Personal taxes

United States income and output

To give an example of the components and their size. ([2])

' National income and output (Billions of dollars)'

Period Ending	2006
Gross national product	11,059.3
Net U.S. income receipts from rest of the world	55.2
U.S. income receipts	329.1
U.S. income payments	273.9
Gross domestic product	11,004.1
Private consumption of fixed capital	1,135.9
Government consumption of fixed capital	218.1
Statistical discrepancy	25.6
National Income	9,679.7

See also

★ Capital formation

★ Compensation of employees

★ European System of Accounts

★ Gross domestic product

★ Gross National Happiness (GNH)

★ Gross output

★ Intermediate consumption

★ National Income and Product Accounts

★ Net output

★ United Nations System of National Accounts (UNSNA)

★ Wealth

External links

★ Historicalstatistics.org: Links to historical national accounts and statistics for different countries and regions

★ World Bank's Development and Education Program Website