National Income Accounting

National Income Accounting:

The sum of income taken from all sectors, including personal, business and government. Also called NNI.

The formula for calculating net national income is: NNI = C + I + G + NX + NFF - IT - D

Where: C = Consumption, I = Investments, G = Government spending, NX = Net exports (calculated by subtracting imports from exports), NFF = Net foreign factor income, IT = Indirect taxes, D = Depreciation.

National income(NNP fc) basically calculated in three ways :-

 

1. PRODUCT METHOD (Value added method):

Theory-only the value of final goods is to be included; otherwise there arises a problem of double counting.

Formula

value of output= Sales + change in stock

• Change in stock = closing stock – opening stock

• Gross value added (GDPMp)=Value of output - Intermediate consumption

• NNP Fc (N.I) = GDPMp (-) consumption of fixed capital (depreciation) (+) Net factor income from abroad ( -) Net indirect tax.

2. Income method:

Theory-Under this method, national income is measured as a flow of factor incomes.

Formula

NDP fc-Compensation of employees(1) +Operating surplus(2)*+Mixed income of self-employed(3)

Operating surplus=Rent & Royalty Interest ,Profit (Corporate Corporate dividend Tax Savings (Net retained earnings)

NDP fc = (1) + (2) + (3)

NNP fc = NDP fc + Net factor income from abroad

3.Expenditure method:

Theory-In this method, national income is measured as a flow of expenditure.

Formula

GDP mp =

1. Government final consumption expenditure.

2. Private final consumption expenditure.

3. Net Export.

4. Gross domestic capital formation*.

Gross domestic capital formation=Gross Domestic fixed capital formation + Change in stock

NNP fc = GDPmp - consumption of fixed capital + NFIA- Net indirect taxes