VIEWS: 10 PAGES: 2 POSTED ON: 1/8/2011
National Income Accounting 1. Gross domestic product (GDP) measures the total market value of final goods and services produced by all resident producing units of a territory in a specified period of time. 2. Gross national product (GNP) measures the total income earned by residents from engaging in production. 3. GDP and GNP measure the market value of production. GDP includes market value of production by both residents and non-residents in resident producing unit. GNP only includes the income earned by residents from production. 4. GNP = GDP + NIA where NIA = Net factor income from abroad 5. Output Approach: Value added = value of output – value of material input (avoid double counting and no need to distinguish intermediate and final goods) 6. Expenditure Approach: GDP = C + I + G + (X-M) C – expenditure on intermediate goods is excluded to avoid double counting --expenditure on second-hand goods is excluded as no current production occurs I -- I = Gross domestic fixed capital formation + changes in inventories -- Value of total output = consumption expenditure + changes in inventories -- Net investment = gross investment – depreciation -- Purchase of residential buildings is included in I. G – welfare payments is excluded because it is not accompanied by any corresponding production of goods or services X-M – Value of total exports of goods = value of domestic exports + value of re-exports 7. NDP = GDP – D (NDP = net domestic product, D = depreciation) 8. Per capita GDP = GDP / population 9. GNPfc = GNPmp – IBT + S ( IBT = indirect business tax, S = subsidy) 10. NI = GNPfc – D ( NI = national income) (NI = NNPfc) 11. NI = W + r + R + P ( W= wage, r=interest, R=rent, P=gross profit) ( gross profit= net profit + profits tax) ( rental income includes estimate of owner-occupied properties) (depreciation is not included) 12. Points to note: Key equations: a. GNP = GDP + NIA GNPfc = GNPmp - IBT + S NI = GNPfc – D = NNPfc NI = W + r + R + P b. GNPfc = NI + D GNPmp = GNPfc + IBT – S c. GDPmp = GNPmp – NIA d. GNPmp = NNPmp + D GDPmp = NDPmp + D GDPfc = NDPfc + D e. Gross Investment = Net investment + Depreciation f. Gross profit = Net profit + profit tax 13. Items not included in GDP a. Intermediate goods Reasons: already included in final goods, avoid double counting b. Non-marketed goods Reasons: no market value to be counted c. Unreported transactions Reason: data not available d. Illegal transactions Reason: data not available e. Used goods Reason: no current production f. Expenditure on shares Reason: buying shares itself creates no and bonds goods and services, only form of wealth holding is changed g. Expenditure on welfare Reason: not accompanied by current payments production h. Income from gifts, Reason: no current production of goods gambling and lucky draws and services
"National income accounting Gross Domestic Product"