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Measurement of National Income, Strengths and Weaknesses of National Income Statistics.

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Introduction

MEASUREMENT OF NATIONAL INCOME, STRENGTHS AND WEAKNESSES OF NATIONAL INCOME STATISTICS Introduction National income is defined as the sum of the incomes accruing to factors of production supplied by normal residents of the given country before deduction of taxes 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 developed by Simon Kuznets in the 1960s. Some of the more common measures are Gross National Product (GNP), Gross Domestic Product (GDP), Net National Product (NNP), and Net National Income (NNI) Analysis Circular Flow of Income The figure below divides the economy into two sections or sectors made up of households and firms. [Source]1 There are two types of flow (an amount per time period) between these groups: A real flow. Households own factor services which they hire out to firms. Factor services are then used to manufacture goods and services. A money flow. Households receive payments for their services (income) and use this money to buy the output of firms (consumption). ...read more.

Middle

GNP is a better when analysing sources and uses of income. In actual fact, there will be minor differences in the results 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 descrepency between the value of goods produced (GDP) and the payments to the factors that produced the goods (particularly if inputs are purchased on credit). The Difference between GDP and GNP Gross National Product (GNP) measures the final value of output or expenditure by UK owned factors of production whether they are located in the UK or overseas. GDP is only concerned with incomes generated within the geographical boundaries of the country. So output produced by Nissan in the UK counts towards our GDP but some of the profits made by Nissan here are sent back to Japan - adding to their GNP. GNP = GDP + Net property income from abroad (NPIA) The following table shows the various techniques used to measure national income: Table: 1 Approaches for Measuring National Income [Source]5 Expenditure Method (Aggregate Demand) ...read more.

Conclusion

sustainable economic welfare but this also applies to the ISEW adjustments to the national accounts, as critics have been quick to point out. ISEW has a number of features which make it unacceptable. In particular, the allowances that are made for environmental damage and depletion of natural capital lack a sound theoretical foundation, multiple-count the costs of climate change and exaggerate the value of reductions in energy reserves, while the adjustments made for changes to the distribution of income are not justified if the aim is to measure the economy's productive potential in terms of ability to provide future welfare (Neumayer, 1999). Appendices Supporting Calculations GDP Year Real GDP GDP per Head � 'millions' '� / Person' 1990 659,171 11,516 1991 650,085 11,318 1992 651,566 11,319 1993 667,804 11,579 1994 698,915 12,092 1995 719,176 12,415 1996 738,046 12,716 1997 763,459 13,125 1998 785,777 13,477 1999 804,713 13,760 2000 829,517 14,145 ? x 7,968,229 137,462 ? x 7,968,229 137,462 N 11 11 Mean 724384.455 12496.55 Population Year Population 'millions' 1990 57.238 1991 57.439 1992 57.563 1993 57.673 1994 57.797 1995 57.928 1996 58.043 1997 58.167 1998 58.305 1999 58.481 2000 58.643 Population increase 58.643 - 57.238 1.405 1.405 58.643 0.02395853 Population Increase or 2. ...read more.

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