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National Income Accounting - Latest
National Income Accounting - Latest
National Income Accounting - Latest
What is the difference between GDP (Gross Domestic Product) and GNP
(Gross National Product)? Final goods and services: Final
GDP is the market value of all final goods and services that are sold and bought goods and services are those
goods and services which are
in a given country in a given period of time. GDP is achieved domestically. GDP not sold to other firms.
does not account net foreign factor income, where net foreign factor income =
factor incomes from abroad – factor incomes to abroad.
GNP is the market value of all final goods and services that are sold and bought
in a given nation in a given period of time. GNP is achieved nationally. GNP
accounts net foreign factor income. So-
GNP = GDP + Net foreign factor income.
Suppose,
Table-1
Bangladesh The US
1 2 3 4
Earnings of Earnings of Earnings of Earnings of
Bangladeshi American American Bangladeshi
entrepreneur entrepreneur entrepreneur entrepreneur
Earnings of Earnings of Earnings of Earnings of
Bangladeshi American American Bangladeshi
worker worker worker worker
Earnings of Earnings of Earnings of Earnings of
Bangladeshi American American Bangladeshi
capitalist capitalist capitalist capitalist
(5) Earnings of Bangladeshi land lord (6) Earnings of American land lord
The GDP of Bangladesh will account both 1 and 2. The GDP of the US will
account both 3 and 4. Here, 1 and 2 both domestically earned in Bangladesh.
And, 3 and 4 both domestically earned in the US. So-
GDPBangladesh = 1 + 2 + 5
GDPUS = 3 + 4 + 6
For the US, 2 is considered as factor income from abroad and 4 is considered as
factor income to Bangladesh. So-
GNPUS = GDPUS + 2 – 4 = 3 + 4 + 6 + 2 – 4 = 3 + 6 + 2
What are the approaches to account national income?
There are three approaches to account national income-
1) Income approach
2) Value added approach
3) Expenditure approach
1. Income approach:
Corporate retained earnings are enjoyed by corporations after meeting up all the
costs of production.
Indirect business taxes are the taxes paid on sales, property and production by
businesses. These taxes are indirect because consumers indirectly pay these taxes
when they buy goods and services.
GNP = GDP + Net foreign factor income ; [net foreign factor income = foreign
factor income from abroad – foreign
factor income to abroad]
By definition,
Value added of a product = Revenue received from the sales of that product –
Purchase of intermediate good from other firms in
order to produce that product
Followed by the above table some of the wheat is bought by consumers and is
not sold in the market farther. So in this case this wheat is final product. No
intermediate good is required to produce wheat. So in this case ‘Purchase of
intermediate good from other firms in order to produce that product’ is Tk.0. So
here value added is Tk.10.
Some of the wheat is used to produce flour and this flour is bought at Tk.10 by
consumers and is sold at Tk15. In this case this flour is final product. So here
value added is Tk.5.
Some of the flour is used to produce bread and this bread is bought at Tk.15 by
consumers and is sold at Tk.20. In this case this bread is final product. So here
value added is Tk.5.
3. Expenditure approach:
We know that-
GDP = Expenditure of an open economy
= C + I + G + Nx ; where C = Consumption, I = Investment, G = Government
spending on goods and services, and Nx = Net export = Export – Import.
Net export (Nx): When net export increases, then aggregate demand increases,
then output increases, thus GDP increases. Likewise, when net export decreases,
then GDP decreases.
References?
1) Economics by Paul A. Samuelson and William D. Nordhaus.
2) Principles of Economics by N. Gregory Mankiw.