2. National income is often used as a generic term, but
there are actually three different forms of national income
statistics:
Gross Domestic Product (GDP)
Gross National Income (GNI)
Net National Income (NNI)
National income: a
general term for the total
income of an economy
over a particular
period of time
3. KEY TERMS
Gross Domestic Product (GDP): the total value of all
that has been produced over a given period of time
within the geographical boundaries of a country
Gross National Income (GNI): the gross domestic
product of a country plus net income from abroad
Net National Income (NNI): the gross domestic product
of a country plus net income from abroad minus the
depreciation of fixed assets
4. The measurement of national income
Gross domestic product
Gross domestic product (GDP) refers to all that is produced within the
geographical boundaries of a particular country. It does not matter
whether the productive assets are owned locally or foreign owned.
5. There are three different ways of measuring the value of a country’s GDP:
The output method: this adds up the total amount of output produced by
firms in an economy — in terms of the value added by each firm to avoid
double counting.
The income method: this adds up the total amount of income received by
peoplein an economy, such as in terms of wages, salaries and profits.
The expenditure method: this adds up all of the spending in an economy by
households, firms and the government, including net export spending.
Each of the three approaches will produce the same figure because they all
measure the flow of income in an economy over a particular period of time.
6. Income Approach
Income from people in jobs and in self-employment (e.g.wages and
salaries)
Profits of private sector businesses
Rent income from the ownership of land
7. Output Method
Value added from each of the main economic sectors
These sectors are:
• Primary
• Secondary
• Manufacturing
• Quarternary
8. Expenditure Approach
The expenditure approach attempts to calculate GDP by
evaluating the sum of all final good and services purchased in an
economy. The components of GDP identified as “Y” in equation
form, include Consumption (C), Investment (I), Government
Spending (G) and Net Exports (X – M).
Y = C + I + G + (X − M)
9. Gross national income
Gross national income (GNI) is GDP plus net income from abroad.
Net national income
Net national income (NNI) is calculated by taking GDP and adding to it
the net receipts of wages, salaries and property income from abroad,
minus the depreciation of fixed capital assets.
= money flowing from foreign countries
= money flowing to foreign countries
10. KEY TERMS
at current market prices: data that are expressed in terms of the prices of a
particular year (i.e. they have not been adjusted to take account of inflation)
at constant prices: data that have been adjusted to take into account the effects of
inflation
GDP deflator: a ratio of price indices that is used in national income statistics to
remove the effect of price changes, so that the figures can be seen as representing
real changes in output
exports: goods and/or services that are produced domestically in one country and
sold to other countries
imports: goods and/or services that are produced in foreign countries and
consumed by people in the domestic economy
11. The adjustment of measures from market prices to
basic prices
GDP deflator
It is important to distinguish between nominal value and real value.
If a country is experiencing inflation, the value of its GDP will rise, but this
increase could be due solely to the rise in prices — in other words, there may
not have been a real increase in value if the effect of inflation is eliminated from
the figures.
This is a limitation of any data expressed at current market prices.
It is therefore important to distinguish between nominal and real variables.
Economists usually produce national income statistics at constant prices, so
that changes in real output can be identified rather than changes in value that
are purely due to the inflation that exists in a country.
12. The GDP deflator is a price index that is used to convert the figures into
real GDP. It measures the prices of products produced in a country and
not the prices of products consumed.
It therefore includes the value not just of consumer products but also
of the capital used in the production of the products. It includes the
prices of exports, but not the prices of imports.
13. KEY TERMS
• depreciation (of capital): the decline in the value of a capital asset
over a given period of time (usually a year)
• net domestic product (NDP): the gross domestic product of a country
minus depreciation or capital consumption
• net national product (NNP): the gross national product of a country
minus depreciation or capital consumption
14. Net domestic product
Net domestic product (NDP) is obtained by deducting depreciation
from GDP.
Net national product
Net national product (NNP) is calculated by deducting depreciation
from the gross national product. As with net domestic product, this is
done to take into account the money that will need to be spent on
replacing machinery and equipment that has worn out during the
course of the year.
Editor's Notes
For example, the output produced at the Nissan car plant on Tyne and Wear contributes to the UK’s GDP Gross Domestic Product (GDP) is a broad measurement of a nation’s overall economic activity. GDP is the monetary value of all the finished goods and services produced within a country's borders in a specific time period. GDP includes all private and public consumption, government outlays, investments, additions to private inventories, paid-in construction costs and the foreign balance of trade (exports are added, imports are subtracted).
nominal value: the value of a sum of money without taking into account the effects of
inflation
real value: the value of a sum of money after taking into account (removing) the effects
of inflation
