what is national income? and how can we calculate national income?

Question

topic:- national income

Answer 1

see all diagram's here http://people.cedarville.edu/employee/wheelerb/macro/ni/index_ni.html


the total value of all income in a nation (wages and profits and interest and rents and pension payments) during a given period (usually 1 yr)

national income accounting -- the study of the methods of measuring the aggregate output and aggregate income of an economy

taking the nation's economic pulse -- helps define the relationship between an economy's total output and total income

we did not take comprehensive statistics until 1930s (Simon Kuznets - 1971 Nobel prize)

basic principle (fundamental national accounting identity) -- the value of total output equals the value of total income

this principle implies --the only way to increase real income is to increase real output

This point is very important! -- real income cannot be increased without producing more, redistributing income does nothing to increase the amount of wealth available at any point in time

fundamental national accounting identity indicates two methods for calculating GDP

expenditure approach
income approach
circular flow diagram
The diagram represents money flows, not tangible goods and services which could be visualized as flowing in the opposite direction from the arrows depicted below.

The "reddish" looking arrows illustrate the basic circular flow of money from households to firms. These flows are the basis for much of our national income accounting.

The "bluish" arrows depict:

leakages -- income that is not spent on domestically produced goods and services (savings - S, taxes - T, imports - M)

The "greenish" arrows depict:

injections -- expenditures that add to the circular flow of expenditure (investment -- I, government expenditure - G, exports - X)

The injections inject spending into the economy that is lost with the leakages.

final goods (purchased by their ultimate users) -- goods that are not used up in the production of other goods in the current period -- these count toward the calculation of GDP

intermediate goods (purchased for resale or use in producing another good) -- goods that are completely used up in the production of another good

intermediate goods do not enter the circular flow -- remain in the business sector, hence intermediate goods are not part of total output

example of double counting:

The data in the table below represent the selling price of the intermediate good. After converting the tree to paper the paper manufacturer sells the paper to the textbook publisher for $3.

textbook production:
tree. . . . . . . . . . . . . . . . $1
paper . . . . . . . . . . . . . . 3
book . . . . . . . . . . . . . . 7
bookstore . . . . . . . . . . . 75
sum of factor payments $86

How much is added to GDP? $86, $75?
The correct answer is "$75". The price of the "tree", "paper", and book is included in the final selling price of the book by the bookstore. To include these amounts in GDP calculation would be to "double count."

value added -- amount of "value" that is "added" at each stage of production, the value of firm's product minus the value of the resources it purchases from other firms

methods for calculating GDP

expenditure approach -- sum the monetary value of all final goods and services
income approach -- sum all factor incomes
two sides of the same coin
expenditure approach

expenditure approach -- sum the monetary value of all final goods and services

consumption

C = personal consumption expenditures -- final goods and services, non durable and durable goods.

investment

I = gross private domestic investment -- expenditures that add to (or replace) the economy's capital stock (plants, equipment, structures, and inventories).

investment is not an intermediate good because it is not completely used up

two main categories of investment

inventory investment - increase or decrease (disinvestment) in the value of the stocks of inventories that businesses have on hand.
fixed investment -- addition of new plants, equipment, commercial buildings, and residential structures
government
G = local, state, federal purchases of final goods and services.

final goods and services by convention
valued at the cost of supply because they are not sold to final consumer therefore government expenditures
does not include: transfer payments -- recipients who have not supplied current goods or services in exchange for these payments (do not represent current output), produce no income or output
net exports
exports minus imports

X = exports (produced domestically but sold to foreigners) -- dollars in, goods out

M = imports (produced by foreigners but purchased by domestic consumers) -- dollars out, goods in

income approach -- sum all factor incomes

national income -- sum of all payments made to resource owners

compensation of employees ~ 71% of national income
rental income, rent -- payment for the use of property, e.g. land, housing, office space
corporate profit -- return to owners of incorporated firms
dividends
retained earnings
corporate taxes
proprietor's income -- own own business
net interest, how capital enters the process

measures of GDP are not identical with measures of national income

personal consumption expenditure depends on disposable personal income and GDP is a much wider measure than personal disposable income -- in order understand Keynesian economics we must know how disposable personal income relates to GDP

information relating to the reconciliation of GDP to disposable personal income:

GDP and GNP (gross national product) are distinguished by where the output is produced and who owns the resources producing the output. GDP is computed on a geographic basis, not national citizenship. If something is produced within the geographic boundaries of a nation in counts toward GDP. A Japanese citizen living and working in the US contributes to the US's GDP. If one were computing GNP, the Japanese person in the US would add to Japan's GNP, not the United State's
definitions relating to the reconciliation of GDP to disposable personal income:
depreciation -- value of existing capital stock used up
indirect business taxes -- not levied on the firm directly, rather on a good or service (sales taxes, excise taxes, customs duties, property taxes, fees)

see all diagram's here http://people.cedarville.edu/employee/wheelerb/macro/ni/index_ni.html

Answer 2

National income is nothing but the nation how much earned with in the country. The GDP,GNP, Net national income etc.The national income calculated in 3 ways
Product method,
Income method
Expenditure method

Answer 3

To have an income you need more money coming in than going out. We currently have a deficit. No income and borrowing more money for our grandchildren and their kids to pay back.

The last time we had a national income was when Clinton was president and all was well with the world.

Answer 4

the GNP (Gross National Product) has alot to do with how a country is doing finantialy. You factor in exports to inports, wages, dept to income, investments and business.