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    Measuring of National Income: The Output Approach

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    Mohammad Masum
    The document discusses several approaches to measuring national income: 1. The output approach focuses on finding the total value of final goods and services produced to avoid double counting at different production stages. 2. The income approach equates a nation's total output to total factor incomes like wages, profits, rents, and interest received by citizens. 3. The expenditure approach finds total output by measuring the total amount spent on consumption, investment, government spending, exports, and imports.

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    Measuring of National Income: The Output Approach

    Uploaded by

    Mohammad Masum
    19 views3 pages
    The document discusses several approaches to measuring national income: 1. The output approach focuses on finding the total value of final goods and services produced to avoid double counting at different production stages. 2. The income approach equates a nation's total output to total factor incomes like wages, profits, rents, and interest received by citizens. 3. The expenditure approach finds total output by measuring the total amount spent on consumption, investment, government spending, exports, and imports.

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    National Income

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    The document discusses several approaches to measuring national income: 1. The output approach focuses on finding the total value of final goods and services produced to avoid double counting at different production stages. 2. The income approach equates a nation's total output to total factor incomes like wages, profits, rents, and interest received by citizens. 3. The expenditure approach finds total output by measuring the total amount spent on consumption, investment, government spending, exports, and imports.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    19 views3 pages

    Measuring of National Income: The Output Approach

    Uploaded by

    Mohammad Masum
    The document discusses several approaches to measuring national income: 1. The output approach focuses on finding the total value of final goods and services produced to avoid double counting at different production stages. 2. The income approach equates a nation's total output to total factor incomes like wages, profits, rents, and interest received by citizens. 3. The expenditure approach finds total output by measuring the total amount spent on consumption, investment, government spending, exports, and imports.

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    Measuring of National Income

    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), net national income (NNI), and adjusted national income (NNI* adjusted for natural resource depletion). All are especially 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. There are 3 ways to measure national income: 1. The Output Approach, 2. The Expenditure Approach and 3. The Income Approach.

    The Output Approach


    The output approach focuses on finding the total output of a nation by directly finding the total 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 the total output. This avoids an issue often called 'double counting', wherein the total value of a good is included several times in national 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 final national output should be $60, not the sum of all those numbers, $100. The values added at each 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.

    Formula:
    GDP (Gross Domestic Product) at Market Price = Value of Output in an economy in the particular year - Intermediate Consumption NNP at Factor Cost = GDP at Market Price - Depreciation + NFIA (net factor income from abroad) - Net Indirect Taxes

    The Income Approach


    The income approach equates the total output of a nation to the total factor income received by residents or citizens of the nation. The main types of factor income are:

    Employee compensation (cost of fringe benefits, including unemployment, health, and retirement benefits); Interest received net of interest paid; Rental income (mainly for the use of real estate) net of expenses of landlords; Royalties 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 has stockholders, they own the residual, some of which they receive as dividends. Profit includes the income of the entrepreneur - the businessman who combines factor inputs to produce a good or service.

    Formula:
    NDP at factor cost = Compensation of Employees + Net interest + Rental & Royalty Income + Profit of Incorporated and Unincorporated NDP at Factor Cost

    The Expenditure Approach


    The expenditure approach is basically an output accounting method. It focuses on finding the total 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 spent on goods. The basic formula for domestic output takes all the different areas in which money is spent within the region, and then combines them to find the total output. 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 Note: (X - M) is often written as XN, which stands for "net exports"

    Some Definitions:
    Gross domestic product (GDP) is defined as "the value of all final goods and services produced in a country in 1 year". Gross National Product (GNP) is defined as "the market value of all goods and services produced in one year by labor and property supplied by the residents of a country. NDP: Net domestic product is defined as "gross domestic product (GDP) minus depreciation of capital", similar to NNP. GDP Per Capita: Gross domestic product per capita is the mean value of the output produced per person, which is also the mean income.

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