National Income Accounting

What is National Income?

Definition: National Income is the total (aggregate) money value of all final goods and services produced by the residents of a country during a year.

It can be measured in three ways:

1. Output/product method/technique

2. Expenditure method/technique

3. Income method/technique

All the three methods will produce the same figures.

Important Concepts and Adjustments

1.      From "market price" to "factor cost".

  • Market price refers to the prices at which consumers pay for their goods and services, while factor cost refers to the actual cost of producing these items.


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2.      From "Domestic to "National " Output/income

  • "Domestic" values refer to the income/output received or produced by both citizens and foreigners from economic activities within the country only.
  • "National" values refer to the economic activities derived from the citizens of the country, both domestically and abroad.

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3.      From "Gross" to "Net" output/income

  • "Gross" values refer to the total output produced during a given period without regard to depreciation while "net" values exclude that amount of depreciation.

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