“SUMMARY OF MEASURING

THE NATIONAL INCOME

ACCOUNT”

SUBMITTED BY: DEQUITO, JUDY LANE Y. BSMA-I

SUBMITTED TO: ROVY MAY MASONG
 National income accounting is a bookkeeping system that a government uses to measure
the level of the country's economic activity in a given time period.
 Although national income accounting is not an exact science, it provides useful insight
into how well an economy is functioning, and where monies are being generated and
spent. When combined with information regarding the associated population, data
regarding per capita income and growth can be examined over a period of time.
 The information collected through national income accounting can be used for a variety
of purposes, such as assessing the current standard of living or the distribution of
income within a population. Additionally, national income accounting provides a method
for comparing activities within different sectors in an economy, as well as changes within
those sectors over time. A thorough analysis can assist in determining overall economic
stability within a nation.

 Gross domestic product (GDP) is the total value of output in an economy and is used to
measure change in economic activity. GDP includes the output of foreign owned
businesses that are located in a country following foreign direct investment.
 The broadest and most widely used measure of national income is gross domestic product
(GDP), the value of expenditures on final goods and services at market prices produced
by domestic factors of production (labor, capital, materials) during the year.
 NIAs provide the basis for evaluating government policy and can rationalize political
challenges to incumbents by people who are dissatisfied with measurable aspects of the
government’s policies. In emerging and transition economies, implementing a
dependable and accurate system of NIAs is a crucial step in developing economic policy.
 Measuring National Income
 National income is the total market value of production in a country’s economy during a
year. It can be measured alternatively and equivalently in three ways:

 The value of expenditures

 The value of inputs used in production
 The sum of value added at each level of production
 That the first two measures are identical can be seen by considering that any good say, a
loaf of bread—can be equivalently valued as either the price that is paid for it in the
market by the final consumer or as the distributed factor payments to labor (wages) and
to capital (rent, interest, and profit)—used in its production. Since national output is the
sum of all production, the total value will be the same whether added up by final
expenditure or by the value of inputs (including profit) used in their production.

 Main article: 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.
 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.
 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 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 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.