Business Activity: A Macroeconomic Outlook at the concept of National Income Accounting and how to calculate it by @swaylee

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Greetings Everyone,
I am Rasheed and welcome to my blog. For today's lecture we would be looking at a very huge macroeconomic variable. This variable is used in the calculation of income received by a country. It considers the country as a whole so I would be teaching you all about it and the ways to calculate it. We would also be looking at some other terminologies used in National Income Accounting so stay tuned and make sure to learn alot from here.

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What is National Income Accounting

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This is a means of computing the monetary value of goods and services produced in a specified country during a given period of time. It is usually done by the government to ascertain the growth in the country's economy over a given period of time.

Common Things to Note When Looks at A Country National Income

✓They are measured in terms of money at current prices and then added together.

✓The market price of only the final products are taken into account so no calculation of intermediate goods or raw materials to avoid double counting.

✓Goods and services which were rendered for free are not included in the national Income calculation as no monetary value was added.

✓The value of past years goods or things that do not add to the production process are not included in the calculation of NI (National Income)

✓Profits or losses made on the change of fixed assets due to fluctuations in the market (inflation, deflation etc) are not included in the calculation of NI

✓Money earned through carrying out of illegal activities aren't calculated as national Income and hence aren't included in the calculation.

✓Buying and selling of second hand goods, transfer payments and windfall gains (income from one time events like winning lottery or unexpected inheritance) are not included in the calculation of the NI.

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Metrics to the Calculation of National Income

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✓ Gross Domestic Product
This is simply the total monetary value of final goods and services produced in a country over a given period of time. It is the most important measure of a country's income but it fails to take to consideration alot of things so it's not really accurate when it comes to the tracking of the economy's wellbeing.

Formula: GDP= C + I + G + X Where

• C is the consumption expenses
• I is the investment expenses
• G is government expenses
• X is the net exports (exports less imports)

✓ Gross National Product (GNP)
This is simply the total monetary value of goods produced by a country's citizens in a given financial year irrespective of their location including net income from abroad. The GNP is simply the GDP plus net income from abroad. It takes into consideration the foreign and domestic investments of the people so it's more accurate when using the check the country's income than the GDP.

Formula: GNP= C + I + G + X + Z Where

• C is the consumption expenses
• I is the investment expenses
• G is government expenses
• X is the net exports (exports less imports)
• Z is net income earned by domestic citizens from their foreign investments less net income earned by foreigners from their investments in the country.

✓ Net National Product (NNP)
The net national product of a country is the total monetary of goods and services produced by factors of production in a country irrespective of their location less depreciation. That means NNP is simply GNP less depreciation. Depreciation here simply means the reduction in economic value of a fixed asset asides land due to wear and tear, over usage and so on.

Formula: NNP= (C + I + G + X + Z) - Depreciation Where

• C is the consumption expenses
• I is the investment expenses
• G is government expenses
• X is the net exports (exports less imports)
• Z is net income earned by domestic citizens from their foreign investments less net income earned by foreigners from their investments in the country.

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Methods of Calculating National Income

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✓Income Method
The income method of calculating national income basically looks at the income generated or paid to the factors of production annually in a country. The factors of production include land, labour, capital and entrepreneur. Part of the income generated by these factors include wages and salaries, rent, interests, dividends, direct and indirect taxes, mixed incomes and lots more.

✓Expenditure Method
In contrast to the income method, the Expenditure Method looks at the money spent on the factors of production and in the economy. The formulas for calculating GDP, GNP and NNP earlier were all using the expenditure method as you noticed it was filled with expenses like depreciation, consumption expenditure, government expenditures, investment expenditure and so on. This is also one of the most utilized methods of calculating NI and it's basic formula is; NI= C + I + G + (export - import) + Subsidies -Tax - Depreciation.

✓Value Added Method
The value added method as the name implies involves calculating NI based on the value added at each stage of production. It is usually done by the classification of Various sectors of the economy like agricultural sector, manufacturing sector then individually calculating the Net Value Added at factor cost of each Sector at various levels and this is first done by the substraction of indirect taxes. The difference between the value of material output and inputs at each production stage.it succeeds in telling us the contribution of each sector to the GDP. It is the most realistic of the three methods as it avoids the process of double counting.

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Uses Of National Income Accounting

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✓Inter-sectorial Comparisons
For methods like the value added method, it helps us to calculate and see the growth in various sectors of the economy. I know what and what to develop in each Sector.

✓Making International Comparisons
National Income Accounting helps ones to know the GDP of the country and the GDP of competing countries and know which is doing better and where to improve.

✓Formation of Economic Policies
As National Income Accounting helps us to check and compare with the country's growth. This would help the government to know where the country is lacking and to make the appropriate policies to make the economy better.

✓Changes to average living standard of the population
These calculations help one to know the average growth rate of the country and to know the changes to the standard of living of the citizens. If the standard of living reduces, it would be noticed if it were to increase then it would know.

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Conclusion

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I hope I was able to simplify this issue as it's more complicated than this but I had to make it easier to read and understand. National Income Accounting is an activity carried out by the macro economists of a country and it's a necessity and plays an important role in economic growth. Thanks for reading

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Post Name:	Business Activity: A Macroeconomic Outlook at the concept of National Income Accounting and how to calculate it by @swaylee
Owner's name :	@swaylee
Business Address	Barnawa, Kaduna, Nigeria
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