Definition: National income refers to the total money value of good and services produced in a country during a giving period of time, usually one year.
THE MEASUREMENT OF NATIONAL INCOME
National income is measured using three convention method
The output method, income method and expenditure method
The output method: this method consists of summing the money value of all goods and services produced in a country during a period of one year. This output includes agriculture, shipping, construction, banking and insurance etc.
The income method
This income method measures the money value of all payments made to the factor of production. This income include rent for land, interest for capital, and profit for entrepreneur.
The expenditure method: this expenditure method consists of summing all the expenditure on the final good and services in a country for a period of one year.
Problem faced in measuring national income
- Double counting: since the output of some firms are input to others,there exit chances of counting the output of some firms more than once.
- Changes in the value of money: fluctuations in the value of money caused by fluctuations in commodity prices render national values available.
- Illiteracy: this is the inability to read or write.
- Transfer payment: this consists of those income beneficiaries do not contribute to the current output of the country.
- Illegal activities: incomes from illegal activities such as prostitution, drug trafficking, gambling etc are not counted in national income statistics because they are unofficial activities.
Derivation of national income aggregates.
A. The gross domestic product (GDP). this is the total money value of goods and services produced from factors of production located within the country.
B. The Gross National product. (GNP) this is the total money value of goods and services produced in a country from resources owned by the nationals irrespective of where the resources are located.
C. Personal income (PI) it is the income of household before direct taxes are deducted.
D. Disposable income (Yd) it is the remainder of income after direct taxes have been deducted.
E. Per capital income.this is the incom.