NATIONAL INCOME
National
income is the total value of a countries
final output of all new goods and services produced
in one year. It is certain that
to understand how national income is
created how national income is crated is the starting point
for macroeconomics.
NATIONAL INCOME ACCOUNTS
Since
the 1940s the UK government has gathered
detailed records of national income, though the collection of basic data goes
back to the 17th century .
the published national income account for the UK called the ‘BLUE BOOK”
measure all the economic activities
that ‘add value” to the economy.
ADDING VALUE
National
output, income and expenditure are
gathered when there is an
exchange involving a monetary
transaction. However, for an individuals economic transaction to be included in aggregated national income it must involve the purchase of
newly produced goods or
services. In other words it must create a genuine addition to the value of the scarce resources for instance a transaction that involves selling a second
hand good, and which was new two years
ago does not add to national income ,
through the original production and
purchases does. Transactions which do not
add value are called transfers,
and they includes l second
hand sales, gifts
and such as disability allowance
and state pensions
THE NATIONAL INCOME
IDENTITY
This relationship
is expressed in the national
income identity, where the amount received
a national income is identical to the
amount spent as national expenditure,
which is also identical to what is
produced as national output. Throughout macroeconomics the terms
income, output and expenditure are interchangeable
THE CREATION OF NATIONAL INCOME
The
simplest way to think about national income
is to consider what happens when
one product is manufactured and
sold typically, goods are produced in a
number of stages where raw materials are
converted by firms at one “stage” than
sold to firms at the next stage.
Blue is added at each
intermediate, stage, and at the final stage , the
product is giving a retail selling price. The retail prince reflects the value added in terms of all the resources used in all the previous stages of production
FINAL OUTPUT
In
accounting terms, only the value of final output is recorded . to avoid the problem of double counting, only the value
of the final stage, the
retail price is included and not the value added in all the
intermediate stages, the costs of production. Plus profits. Infact national income is the
value of all the final output of goods and services produced in one year. For
instance, for one to consider the production of a motor car which has a retail
price of N250,000 and this price
includes N210,000 for all the cost of production, N60,000 for component, N10,000 for assembly, N500 for marketing and N40,000 as profit for one
to avoid double counting the national income accounts only
record the value of the
final stage, which is at the selling price of N250,000
There are three
methods of calculating national income:
1.
The income methods :
This system add up all incomes received
by the factors of production generated
in the economy during a year. This includes wages from employment and self employment, profits
to firms , interest to senders of
capital and rents to owners of land
2.
The output
method: which involve the combined value
of the new and final output produced in all sectors of the economy. Including
manufacturing financial services transport, leisure and agriculture
3.
Expenditure method :
this system add up all spending in the
economy by households and
firms on new and final goods and
services by households and firms
Thus gross domestic product (GOP) is the most
important aggregate of national
income for accounting purposes and
for economic analysis