National income accounting involves calculating the total value of all final goods and services produced in a country in a year. It can be measured using the expenditure approach, income approach, or product approach. There are several challenges to accurate national income calculation including non-monetized sectors, illiteracy, lack of expertise, less sophisticated tools, double counting, false reporting, and multi-occupations. National income data is used to measure economic growth, real income, per capita income, and growth rates.

2. The flow of goods and services in a nation over a certain period of time. (usually
one year)
The total money value of all goods and services produced by a nation during one
year after deducting the depreciation value of the machines used in production.
The total payments received by the factors of production through the production
of goods and services in a country in a year.
Total net output of the nation.
National income of a country is its annual consumption and not units annual
production.

3.  Gross Domestic Product (GDP)
• Total money value of the all final goods and
services produced within a country in a given
time period.
 Gross National Product (GNP)
• Total market value of all final goods and
services produced by the residents of a
country during period of time.

4.  Market Price and Factor Cost
• GDP can be measured at market price and factor
cost.
• Market price – current price in the market
through the forces of demand and supply. (actual
price paid by consumers)
• Factor cost – real price earned by producer or
seller.

5.  Net National Product (NNP)
• The market value of the net output of goods and
services produced by nation in a year.
• Also referred to as the national income at market
prices.
 National Income at Factor Cost (NI)
• The total of all income payments made to factor
of production.
• Can be derived from NNP.

6.  Personal Income (PI)
• The income that is actually received by
individuals and household in an economy in a
year.
• Deduction made from national income:-
(i) Corporate income taxes
(ii) Retained earning
(iii) Social security contributions
(iv) Insurance premium
 Disposable Personal Income (DPI)
• Part of the personal income that is left after the
payment of personal direct taxes.

7. INCOME = PRODUCT = EXPENDITURE
3 Approaches :
 Expenditure Approach
 Product Approach
 Income Approach
EXPENDITURE APPROACH
 Personal Consumption (C)
- purchase of good and services produced by firms, individuals or
households .
 Investment
- purchase of capital goods by firms for use in production and in
changes in the firm inventories .
 Government Spending (G)
- expenditure incurred by federal, state and local government for
final good and services .
 Net Exports ( X-M)
- differences between the value of exports and the value of imports .

8. INCOME APPROACH
 Wages and Salaries
- income received by labour from firm for services rendered to
them .
 Net Interest
- differences between total interest payment received and total
interest payment made by households .
 Rental income
- payment for rented inputs .
 Profit
- corporate profits earned by business corporations or
payment of dividends to shareholders .
PRODUCT APPROACH
- measured by net value of all final goods and services
produced by nation during a year .
- OUTPUT APPROACH or VALUE ADDED APPROACH

9. 3 Sectors Contributing in GDP
a) PRIMARY SECTOR : compare Mining and Quarrying, Agriculture,
Forestry and Fishing .
b) SECONDARY SECTOR : compare Manufacturing and Construction .
c) TERTIARY SECTOR : compare Electricity, Gas and Water, Wholesale and
Retail Trade, Finance, Insurance, Real Estate and
Business Services, Transport, Storage and
Communication Government Services and other
services .

10. National Income Accounting = helps to identify sources of income and
heads of expenditure.
REASONS :
 Standard of living comparison .
 Economic performance over time .
 National planning .
 Sectoral contribution .
 Economic policy .
 Inflationary and deflationary gaps .
 National expenditure .
 Public sector .
 Distribution of income .

11.  Thecalculation of the national income of a
country is not an easy task . National income
calculations are complicated and complex .
These problems arise due to a lack of a clear
grasp of the national income accounting
procedures . These are two major problems
which will arise when calculating national
income . These problems are practical and
conceptual in natural .

12. 1.Problems of non-monetized sector
Problems of a non-monetized sector usually arise in
most third world countries like India , Bangladesh ,
Myanmar , Cambodia , Vietnam and Many African
countries . The existence of a large number of non-
monetized activities in these countries especially in
the agriculture sector makes the computation of the
national income more difficult . This sis due to the fact
that a large quantity of agricultural output in these
countries does not reach the market . It is either
consumed directly by farmers or exchanged for other
goods and services . This lead to difficulties in
calculating the national income .

13. 2. Problem of illiteracy
A large number of small producers in third
world countries are illiterate and are unable to
keep accounts of their productive activities .
Most of the products that they produce are for
self - consumption and not for the market and
records are not kept productivity activity . Thus
they fail to provide accurate information to the
government for the purpose of calculating
national income .

14. 3. Problems of expertise
The lack of professionals such as statisticians ,
researchers , programmers and analysis is a
major problems in third world countries . The
services of these professionals is very important
in estimating national income data accurately
with minimum errors .

15. 4. Problems of less sophisticated machinery
Another important difficulty is the non-availability
of sophisticated machinery such as advanced
computers or programs to compute national
income data . Data collected on national income
regardless of which method is used , need to be
analyzed using sophisticated machinery .

16. 5. Problem of double counting
Another difficulty is double counting which is
usually associated with the product methods .
Double counting implies the possibility of
intermediate goods being included in the national
income more than once.
6. Problem of false information
This problem arises in developed as well as
developing countries . people do not disclose
their income or underestimate their income to
avoid paying higher taxes .

17. 7. Problems of multi - occupations
Another difficulty in calculating national income is
the problem of multi - occupations . People have
been found to be engaged in a number of economic
activities which are not included in the national
income .

18. REAL INCOME
 Used to measure the economic growth of a country .
 Real Gross National Product (GNP) measured on a fixed
price
or base year .
 NOMINAL GNP = measured in current prices .
 Convert Nominal GNP = Real GNP using GNP deflator .
PER CAPITA INCOME
 The average income per head of population .
 Used as an index change in the standard of living of a
country.

19. GROWTH RATE
 The percentage change in the quantity of goods and
services
produced from one year to another .