National Income Accounting

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Questions and Answers

What is the value of final goods and services from the 3 economic sectors added together in the Net Product Method?

Net national product at Factor cost

National Income

Gross domestic product at Market price (correct)

Gross national product at Market price

Which of the following is NOT a component of Gross national product at Market price (GNPmp)?

Primary sector

Income paid abroad

Subsidies (correct)

Tertiary sector

What is the difference between Gross national product at Market price and Gross national product at Factor cost?

Wages and salaries of all employees in every sector

Depreciation or capital consumption

Subsidies and indirect taxes or taxes on expenditure (correct)

Income paid abroad and income received from abroad

Which sector involves activities such as agriculture, mining, and fishing?

Primary sector Signup and view all the answers

What is excluded from national income but included in personal income?

Household's interest income Signup and view all the answers

What is the term for the value of goods produced but unsold?

Changes in business stocks or inventories Signup and view all the answers

What is the formula to calculate disposable personal income?

Personal Income - Personal Taxes Signup and view all the answers

Which method looks at the flow of economic activities from the income point of view?

Factor Income Method Signup and view all the answers

What is the term for the total value of wages and salaries of all employees in every sector?

Wages and salaries Signup and view all the answers

What is the first stage of the Net Product Method?

Estimating the gross value of domestic output in various branches of production Signup and view all the answers

What is the tertiary sector?

Service sector Signup and view all the answers

What is the difference between Gross domestic product at Market price and Gross national product at Market price?

Income paid abroad and income received from abroad Signup and view all the answers

What is not a method of measuring national income?

Gross Domestic Product Method Signup and view all the answers

What is the primary sector?

Agricultural, mining, and fishing Signup and view all the answers

What is the formula for calculating GDP?

Y = C + I + G + NX Signup and view all the answers

What is included in the calculation of GNP?

Income earned by citizens within the country and abroad Signup and view all the answers

What is the difference between GDP and GNP?

GNP includes income earned abroad, while GDP does not Signup and view all the answers

What is Net National Product (NNP)?

GNP minus depreciation Signup and view all the answers

What is not included in Government Purchases (G)?

Transfer payments Signup and view all the answers

What is Personal Income?

The income that households and non-corporate businesses receive Signup and view all the answers

What is Net Exports (NX)?

Exports minus imports Signup and view all the answers

What is Investment (I)?

The spending on capital equipment, inventories, and structures Signup and view all the answers

Study Notes

Calculation of National Income

National income can be calculated through three methods: Net Product Method, Factor Income Method, and Expenditure Method

Net Product Method

Calculates the total value of final goods and services from three economic sectors: primary, secondary, and tertiary
Formula: GDPmp = Primary sector + Secondary sector + Tertiary sector
Adjustments: (-) Income paid abroad, (+) Income received from abroad, (+) Subsidies, (-) Indirect taxes or taxes on expenditure, and (-) Depreciation or capital consumption
Result: Net national product at Factor cost (NNPfc) = National Income

Factor Income Method

Calculates national income from the income point of view
Components: Wages and salaries, Interest and dividends, Rent, Profits, and Income of self-employed workers
Formula: GDImp = Wages and salaries + Interest and dividends + Rent + Profits
Adjustments: (-) Income paid abroad, (+) Income received from abroad, (+) Subsidies, (-) Indirect taxes or taxes on expenditure, and (-) Depreciation or capital consumption
Result: Net national income at factor cost (NNIfc) = National Income

Expenditure Method

Calculates national income from the expenditure point of view
Components: Household expenditure or consumer expenditure, Producer's expenditure or gross investment, and Government expenditure
Excludes retained earnings and includes household's interest income and government transfers

Personal Income and NNP

Personal Income = NNP - Undistributed Company Profits - Surplus of Public Undertaking - Rentals of Public Property
Disposable Personal Income = Personal Income - Personal Taxes

Methods of Measuring National Income

3 methods: Net Product Method, Factor Income Method, and Expenditure Method

Net Product Method (Three stages)

Stage 1: Estimating the gross value of domestic output in various branches of production
Stage 2: Determining the cost of material and services used and depreciation
Stage 3: Deducting costs and depreciation from gross value to obtain the net value of domestic output

GDP and its Components

GDP = Consumption (C) + Investment (I) + Government Purchases (G) + Net Exports (NX)
Consumption (C): spending by households on goods and services, excluding new housing
Investment (I): spending on capital equipment, inventories, and structures, including new housing
Government Purchases (G): spending on goods and services by local, state, and federal governments, excluding transfer payments
Net Exports (NX): exports minus imports

Gross National Product (GNP)

GNP = Market value of domestically produced goods and services + Incomes earned by residents in foreign countries - Incomes earned by foreigners in the country

Net National Product (NNP)

NNP = GNP - Depreciation
Depreciation: wear and tear on the economy's stock of equipment and structures

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Description

Quiz on calculating GDP and GNP using the Net Product Method, including factors such as income paid and received abroad, subsidies, indirect taxes, and depreciation.