Measures of national income and output
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A variety of measures of national income and output are used in
economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. ...
to estimate total economic activity in a country or region, including
gross domestic product Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced in a specific time period. List of countries by GDP (nominal) per capita, GDP (nominal) per capita does not, however, reflect ...
(GDP),
gross national product The Gross National Income (GNI), previously known as Gross National Product (GNP), is the total domestic and foreign output claimed by residents of a country, consisting of Gross Domestic Product ( GDP), plus factor incomes earned by foreign ...
(GNP),
net national incomeIn national income accounting, net national income (NNI) is net national product (NNP) minus indirect tax An indirect tax (such as sales tax, per unit tax, value added tax (VAT), or value added tax, goods and services tax (GST ), excise, consumptio ...
(NNI), and adjusted national income (NNI adjusted for natural
resource depletion Resource depletion is the consumption of a resource faster than it can be replenished. Natural resources are commonly divided between renewable resource File:Global Vegetation.jpg, Global vegetation A renewable resource, also known as a flo ...
– also called as NNI at factor cost). All are specially concerned with counting the total amount of goods and services produced within the economy and by various sectors. The boundary is usually defined by geography or citizenship, and it is also defined as the total income of the nation and also restrict the goods and services that are counted. For instance, some measures count only goods & services that are exchanged for money, excluding bartered goods, while other measures may attempt to include bartered goods by ''imputing'' monetary values to them.


National accounts

Arriving at a figure for the total production of goods and services in a large region like a country entails a large amount of data-collection and calculation. Although some attempts were made to estimate national incomes as long ago as the 17th century, the systematic keeping of
national accounts National accounts or national account systems (NAS) are the implementation of complete and consistent accounting Scientific technique, techniques for measuring the economic activity of a nation. These include detailed underlying measures that r ...
, of which these figures are a part, only began in the 1930s, in the
United States The United States of America (USA), commonly known as the United States (U.S. or US), or America, is a country Contiguous United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., federal di ...

United States
and some
European countries The list below includes all entities falling even partially under any of the various common definitions of Europe, geographical or political. Fifty generally recognised sovereign states, Kosovo with limited, but substantial, international recog ...
. The impetus for that major statistical effort was the
Great Depression The Great Depression was a severe worldwide economic depression that took place mostly during the 1930s, beginning Great Depression in the United States, in the United States. The timing of the Great Depression varied around the world; in mos ...
and the rise of
Keynesian economics Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946) was an English economist, whose ideas fundamentally changed the the ...
, which prescribed a greater role for the government in managing an economy, and made it necessary for governments to obtain accurate information so that their interventions into the economy could proceed as well-informed as possible.


Market value

In order to count a good or service, it is necessary to assign value to it. The value that the measures of national income and output assign to a good or service is its market value – the price it fetches when bought or sold. The actual usefulness of a product (its use-value) is not measured – assuming the use-value to be any different from its market value. Three strategies have been used to obtain the market values of all the goods and services produced: the product (or output) method, the expenditure method, and the income method. The product method looks at the economy on an industry-by-industry basis. The total output of the economy is the sum of the outputs of every industry. However, since an output of one industry may be used by another industry and become part of the output of that second industry, to avoid counting the item twice we use not the value output by each industry, but the value-added; that is, the difference between the value of what it puts out and what it takes in. The total value produced by the economy is the sum of the values-added by every industry. The expenditure method is based on the idea that all products are bought by somebody or some organisation. Therefore, we sum up the total amount of money people and organisations spend in buying things. This amount must equal the value of everything produced. Usually, expenditures by private individuals, expenditures by businesses, and expenditures by government are calculated separately and then summed to give the total expenditure. Also, a correction term must be introduced to account for imports and exports outside the boundary. The income method works by summing the incomes of all producers within the boundary. Since what they are paid is just the market value of their product, their total income must be the total value of the product. Wages, proprietor's incomes, and corporate profits are the major subdivisions of income.


Methods of measuring national income


Output

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. Key formulae are:
GDP(gross domestic product) at market price = value of output in an economy in the particular year minus
intermediate consumption Intermediate consumption (also called "intermediate expenditure") is an economic concept used in national accounts, such as the United Nations System of National Accounts (UNSNA), the US National Income and Product Accounts The national income ...
GDP at factor cost = GDP at market price minus depreciation plus NFIA ''(net factor income from abroad)'' minus net indirect taxes(GNP)
NDP at factor cost = Compensation of employees plus net interest plus rental & royalty income plus profit of incorporated and unincorporated NDP at factor cost


Expenditure

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 to economists, 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.
\mathrm = C + G + I + \left ( \mathrm - M \right )
where:
C =
Consumption (economics) Consumption, defined as spending for acquisition of utility, is a major concept in economics and is also studied in many other social sciences. It is seen in contrast to investing, which is spending for acquisition of future income. Different s ...
(Household consumption expenditures / Personal consumption expenditures)
I =
Investment (macroeconomics)Investment is the amount of goods In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption ...
/ Gross private domestic investment
G =
Government spending Government spending or expenditure includes all government consumption, investment, and transfer payments. In national income accounting A variety of measures of national income and output are used in economics to estimate total economic activity ...
(Government consumption / Gross investment expenditures)
X =
Net Exports The balance of trade, commercial balance, or net exports (sometimes symbolized as NX), is the difference between the monetary value of a nation's exports and imports over a certain time period. Sometimes a distinction is made between a balance ...
(Gross exports of goods and services)
M = Net Imports (Gross imports of goods and services) Note: (X - M) is often written as XN or less commonly as NX, both stand for "net exports" The names of the measures consist of one of the words "Gross" or "Net", followed by one of the words "National" or "Domestic", followed by one of the words "Product", "Income", or "Expenditure". All of these terms can be explained separately. :"Gross" means total product, regardless of the use to which it is subsequently put. :"Net" means "Gross" minus the amount that must be used to offset depreciation – ie., wear-and-tear or obsolescence of the nation's fixed capital assets. "Net" gives an indication of how much product is actually available for consumption or new investment. :"Domestic" means the boundary is geographical: we are counting all goods and services produced within the country's borders, regardless of by whom. :"National" means the boundary is defined by citizenship (nationality). We count all goods and services produced by the nationals of the country (or businesses owned by them) regardless of where that production physically takes place. :The output of a French-owned cotton factory in Senegal counts as part of the Domestic figures for Senegal, but the National figures of France. :"Product", "Income", and "Expenditure" refer to the three counting methodologies explained earlier: the product, income, and expenditure approaches. However, the terms are used loosely. :"Product" is the general term, often used when any of the three approaches was actually used. Sometimes the word "Product" is used and then some additional symbol or phrase to indicate the methodology; so, for instance, we get "Gross Domestic Product by income", "GDP (income)", "GDP(I)", and similar constructions. :"Income" specifically means that the income approach was used. :"Expenditure" specifically means that the expenditure approach was used. Note that all three counting methods should in theory give the same final figure. However, in practice, minor differences are obtained from the three methods for several reasons, including changes in inventory levels and errors in the statistics. One problem for instance is that goods in inventory have been produced (therefore included in Product), but not yet sold (therefore not yet included in Expenditure). Similar timing issues can also cause a slight discrepancy between the value of goods produced (Product) and the payments to the factors that produced the goods (Income), particularly if inputs are purchased on credit, and also because wages are collected often after a period of production.


Gross domestic product and gross national product

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 labour and property supplied by the residents of a country." As an example, the table below shows some GDP and GNP, and NNI data for the United States: *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.


National income and welfare

GDP per capita (per person) is often used as a measure of a person's
welfare Welfare (or commonly, social welfare) is a type of government support intended to ensure that members of a society can meet basic human needs Maslow's hierarchy of needs is an idea in psychology Psychology is the science of mind and b ...

welfare
. Countries with higher GDP may be more likely to also score high on other measures of welfare, such as
life expectancy Life expectancy is a statistical measure of the average time an organism is expected to live, based on the year of its birth, its current age, and other demographic Demography (from prefix ''demo-'' from Ancient Greek Ancient G ...

life expectancy
. However, there are serious limitations to the usefulness of GDP as a measure of welfare: * Measures of GDP typically exclude unpaid economic activity, most importantly domestic work such as childcare. This leads to distortions; for example, a paid nanny's income contributes to GDP, but an unpaid parent's time spent caring for children will not, even though they are both carrying out the same economic activity. * GDP takes no account of the inputs used to produce the output. For example, if everyone worked for twice the number of hours, then GDP might roughly double, but this does not necessarily mean that workers are better off as they would have less leisure time. Similarly, the impact of economic activity on the environment is not measured in calculating GDP. * Comparison of GDP from one country to another may be distorted by movements in exchange rates. Measuring national income at purchasing power parity may overcome this problem at the risk of overvaluing basic goods and services, for example subsistence farming. * GDP does not measure factors that affect quality of life, such as the quality of the environment (as distinct from the input value) and security from crime. This leads to distortions - for example, spending on cleaning up an oil spill is included in GDP, but the negative impact of the spill on well-being (e.g. loss of clean beaches) is not measured. * GDP is the mean (average) wealth rather than median (middle-point) wealth. Countries with a skewed income distribution may have a relatively high per-capita GDP while the majority of its citizens have a relatively low level of income, due to concentration of wealth in the hands of a small fraction of the population. See
Gini coefficient In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of ...

Gini coefficient
. Because of this, other measures of welfare such as the
Human Development Index The Human Development Index (HDI) is a statistic composite index of life expectancy Life expectancy is a statistical measure of the average (see below) time an organism is expected to live, based on the year of its birth, its current a ...
(HDI), Index of Sustainable Economic Welfare (ISEW), Genuine Progress Indicator (GPI), gross national happiness (GNH), and sustainable national income (SNI) are used.England, R. W. (1998). Measurement of social well-being: alternatives to gross domestic product. ''Ecological Economics'', ''25''(1), 89-103.


See also

*
Capital formation Capital formation is a concept used in macroeconomics Macroeconomics (from the Greek prefix ''makro-'' meaning "large" + ''economics'') is a branch of economics Economics () is the social science that studies how people interact with valu ...
* Chained volume series *
Compensation of employees{{no footnotes, date=April 2010 Compensation of employees (CE) is a statistical term used in national accounts National accounts or national account systems (NAS) are the implementation of complete and consistent accounting techniques for measu ...
*
European System of AccountsThe European System of Accounts (ESA) is the system of national accounts National accounts or national account systems (NAS) are the implementation of complete and consistent accounting techniques for measuring the economic activity of a nation ...
*
Green national productThe green national product is an economic metric that seeks to include environmental features such as environmental degradation and resource depletion with a country's national product. Criticism of gross national product The gross national ...
*
Gross domestic product Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced in a specific time period. List of countries by GDP (nominal) per capita, GDP (nominal) per capita does not, however, reflect ...
*
Gross national product The Gross National Income (GNI), previously known as Gross National Product (GNP), is the total domestic and foreign output claimed by residents of a country, consisting of Gross Domestic Product ( GDP), plus factor incomes earned by foreign ...
* Gross national happiness (GNH) *
Gross national income in the European Union Gross national income at market prices in the European Union of 27 Member States (GNI) amounted to EUR 25000 per inhabitant in 2008. In 2009 GNI in EU-27 fell by −5.5% over the year 2008. In 2007, the highest per capita GNI measured i purchasi ...
*
Gross output In economics, gross output (GO) is the measure of total economic activity in the production of new goods and services in an accounting period. It is a much broader measure of the economy than gross domestic product (GDP), which is limited mainly to ...
*
Input-output model In computing Computing is any goal-oriented activity requiring, benefiting from, or creating computing machinery. It includes the study and experimentation of algorithmic processes and development of both computer hardware , hardware and softwa ...
*
Intermediate consumption Intermediate consumption (also called "intermediate expenditure") is an economic concept used in national accounts, such as the United Nations System of National Accounts (UNSNA), the US National Income and Product Accounts The national income ...
*
National accounts National accounts or national account systems (NAS) are the implementation of complete and consistent accounting Scientific technique, techniques for measuring the economic activity of a nation. These include detailed underlying measures that r ...
*
National Income and Product Accounts The national income and product accounts (NIPA) are part of the national accounts of the United States. They are produced by the Bureau of Economic Analysis of the Department of Commerce. They are one of the main sources of data on general econo ...
*
Net output Net output is an accounting concept used in national accounts National accounts or national account systems (NAS) are the implementation of complete and consistent accounting techniques for measuring the economic activity of a nation. These i ...
* Penn World Table * Savings identity *United Nations System of National Accounts (UNSNA) *Wealth (economics)


References


Bibliography

* Australian Bureau of Statistics
''Australian National Accounts: Concepts, Sources and Methods''
2000. This fairly large document has a wealth of information on the meaning of the national income and output measures and how they are obtained.


External links


Historicalstatistics.org: Links to historical national accounts and statistics for different countries and regions

World Bank's Development and Education Program Website
* Quandl
GDP by country
- data available in CSV, Excel, JSON or XML formats {{Authority control Gross domestic product National accounts