Measures of national income and output

Measures of national income and output are used in economics to estimate the value of goods and services produced in an economy. They use a system of national accounts or national accounting first developed during the 1940s. Some of the more common measures are Gross National Product (GNP), Gross Domestic Product (GDP), Gross National Income (GNI), Net National Product (NNP), and Net National Income (NNI). Formerly in the Soviet Union and its friendly states COMECON, Net Material Product (NMI) was estimated (NNP-Services). In relation to greening the national accounts the United States Congressional Budget Office concludes "a gradual process of modifying measures of national economic performance is consistent with the history and development of the national accounts."^[1]

There are various ways of calculating these numbers. The expenditure approach determines aggregate demand, or Gross National Expenditure, by summing consumption, investment, government expenditure and net exports. The income approach and the closely related output approach sum wages, rents, interest, profits, non income charges, and net foreign factor income earned. The three methods must yield the same result because total expenditures on goods and services (GNE) must by definition equal the value of goods and services produced (GNP) which must equal total income paid to the factors that produced the goods and services (GNI).

In fact, minor differences are obtained from the various methods due to changes in inventory levels. This is because goods in inventory have been produced (and therefore included in GDP), but not yet sold (and therefore not yet included in GNE). Similar timing issues can also cause a slight discrepancy between the value of goods produced (GDP) and the payments to the factors that produced the goods, particularly if inputs are purchased on credit.

In the Income Approach

Net National Product (NNP) is GNP minus depreciation
Net National Income (NNI) is NNP minus indirect taxes
Personal Income (PI) is NNI minus retained earnings, corporate taxes but it includes transfer payments, and interest on the public debt
Personal Disposable Income (PDI) is PI minus personal taxes.

S = personal savings
C = personal consumption
PDI = personal disposable income
T_P = personal taxes paid
TP_P = personal transfer payments received via governments
PI = personal income
RE = retained earnings
T_C = corporate taxes
TP_C = corporate transfer payments from governments
I_G = interest on the public debt
NNI = net national income
T_IN = indirect taxes
NNP = net national product
D = depreciation

National income and welfare

GNP per person is often used as a measure of a person's welfare. Countries with higher GNP may score highly on other measures of welfare, such as life expectancy. However, there are serious limitations to the usefulness of GNP as a measure of welfare:

Measures of GNP typically exclude unpaid economic activity, most importantly domestic work such as childcare. This leads to distortions; for example, a paid childminder's income contributes to GNP, but an unpaid parent's time spent caring for children will not, even though they are both carrying out the same economic activity.
GNP takes no account of the inputs used to produce the output. For example, if everyone worked for twice the number of hours, then GNP 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 GNP.
Comparison of GNP 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.
GNP 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 GNP, but the negative impact of the spill on well-being (e.g. loss of clean beaches) is not measured.
GNP is the mean wealth rather than median wealth. Countries with a skewed income distribution may have a relatively high per-capita GNP 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.

Because of this, other measures of welfare such as the Human Development Index (HDI), Index of Sustainable Economic Welfare (ISEW), Genuine Progress Indicator (GPI), Gross National Happiness (GNH) and Sustainable National Income (SNI) are used.

National accounting formulae (expenditure approach)

C = Personal consumption expenditures
I = Gross private domestic investment
G = Government consumption expenditures
X = Gross exports of goods and services
M = Gross imports of goods and services
Total = Gross Domestic Product (GDP)

NR = + or - Net income from assets abroad (net income receipts)
Sub Total = Gross National Product (GNP)

CC = Depreciation
IBT = Indirect business taxes
NDP = Net Domestic Product
NI = National Income
PI = Personal Income
DI = Disposable income

Note: (X - M) is often written as "NX," which stands for "Net Exports"

GDP = C + I + G + (X - M)
GNP = C + I + G + (X - M) + NR
GNI = C + I + G + (X - M) + NR - IBT
NI = C + I + G + (X - M) + NR - IBT - CC

The Flow of Income
NDP = GNP - CC
NI = NDP - IBT + net foreign factor income
PI = NI - corporate taxes - retained earnings - social security + transfer payments + net interest
DI = PI - Personal taxes

United States income and output

To give an example of the components and their size. ([1])

**National income and output (Billions of dollars)**
Period Ending	2006
Gross national product	11,059.3
Net U.S. income receipts from rest of the world	55.2
U.S. income receipts	329.1
U.S. income payments	273.9
Gross domestic product	11,004.1
Private consumption of fixed capital	1,135.9
Government consumption of fixed capital	218.1
Statistical discrepancy	25.6
National Income	9,679.7

Notes

↑ http://www.cbo.gov/showdoc.cfm?index=4886&sequence=0 GREENING THE NATIONAL ACCOUNTS

External links

All links retrieved November 17, 2007

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[1] ttp://www.cbo.gov/showdoc.cfm?index=4886&sequence=0 GREENING THE NATIONAL ACCOUNTS

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