Explain the pros and cons of national income accouting for a country like India(Within 500 words) please give me this answer....
Answers
Answer:
National income accounting refers to the set of methods and principles that are used by the government for measuring production and income, or in other words economic activity of a country in a given time period.
The various measures of determining national income are GDP (Gross Domestic Product), GNP (Gross National Product), and NNP (Net National Product) along with other measures such as personal income and disposable income.
Table of Content :
The importance of national income accounting is that it is helpful in facilitating techniques and procedures for measurement of output and income at the aggregate level. It is a process of preparing national income accounts that is based on the principles of double entry system of business accounting.
National income accounting helps in summarising the economic performance of a country by measuring the national income aggregates for the year.
The government policies are framed on the basis of the data obtained from national income accounting.
What is the national income accounting equation?
National income accounting equation is an equation that shows the relationship between income and expense of an economy and other categories. It is represented by the following equation:
Y = C + I + G + (X – M)
Where
Y = National income
C = Personal consumption expenditure
I = Private investment
G = Government spending
X = Net exports
M = Imports
The most important metrics that are determined by national income accounting are GDP, GNP, NNP, disposable income, and personal income. Let us know more about these concepts briefly in the following lines.
Gross Domestic Product (GDP)
The most important metric that is determined by national income accounting is GDP or the gross domestic product. GDP is defined as the total monetary or the market value of all the final goods and services that are produced within the geographical boundaries of a country.
GDP works as a scorecard that reflects the economic health of a country. It is calculated on an annual basis. GDP helps in estimating the growth rate of a country. GDP can be calculated using the three methods, which are expenditures method, production method, and income method.
The other indicators of national income are derived from GDP.
GDP can be calculated by the following two methods:
Expenditure approach
Income approach
Calculation of GDP by expenditure approach is,
GDP = C + I + G + (X – M)
Where
GDP = Gross domestic product
C = Personal consumption expenditure
I = Private investment
G = Government spending
X = Net exports
M = Imports
Income approach calculation
GDP = Private consumption + Gross investment + Government investment + Government spending + (Exports – Imports)
Gross National Product (GNP)
Gross national product or GNP is a measure of the total value of all the finished goods and services that is produced by the citizens of a country irrespective of their geographic location. It calculates only the final or finished goods.
It signifies how much the citizens of a country are contributing to the economy. It does not include income earned by foreign nationals within the country.
GNP is calculated using the following formulae:
GNP = C + I + G + X + Z
Where
C = Consumption
I = Investment
G = Government
X = Net exports
Z = Net factor income from abroad
Net National Product (NNP)
Net national product or NNP is the total value of all goods and services that are produced in a country during a given period minus the depreciation. It is represented as follows:
NNP = GNP – Depreciation
Methods of National Income Accounting
There are three methods of measuring national income. They are as follows:
Product method: In this method, a country’s national income can be calculated by adding the output of all the firms in the economy to determine the nation’s output.
Income method: This method is used to calculate incomes generated by production. It includes income from employment, rent obtained for buildings, patents, and copyrights, return on capital from the private sector and public sector, depreciation, etc.
Expenditure method: In this method, the national income is calculated by adding all the expenditures that are done for purchasing the national output.
Functions of National Income Accounting
The basic functions of national income accounting are as follows:
To determine the economic status of a country.
To provide a basis for evaluation and reviewing of policies that are under implementation.
Uses of National Income Accounting
Uses of national income accounting are as follows:
It reflects the economic performance of an economy and shows its strengths and weaknesses.
It helps to determine the structural changes that are appearing in the economy.
It helps in comparing nations based on national income.
It shows the contribution of each sector towards the growth of the economy.
Explanation:
Hope it will help you.
Answer:
A method for measuring an economy's income and output is called national income accounting.
Explanation:
- Two key concepts are taken into account while computing national income accounting: macroeconomics, which focuses on the state of the economy as a whole, and microeconomics, which deals with people and organisations. Goods are items that fulfil the needs, desires, and wants of humans.
- One of the most important macroeconomics ideas is income and output. The total amount of products and services produced over a given time period in a nation is referred to as its national output.
- The total revenue generated by the sale of these products and services is referred to as the national income.
- National production is frequently referred to as GDP, or Gross Domestic Product, which refers to the revenue received from the output a nation produces. Improvements in capital, output, and income, as well as the purchase of new organisations, organisations, and units, can all have an impact on GDP.
- Additionally, market variables, recession, and inflation might have a detrimental impact on this. When the economy expands too quickly, inflation results. Deflation occurs when the economy plunges and deteriorates over time. Both of these scenarios, wherein deflation results in poor economic output and inflation produces unfavourable outcomes, can be detrimental to an economy.
- GNP measures a nation's overall output of goods and services over a given time period. The income of foreigners who are residents is deducted from the total amount. The same is true for citizens who earn a living by working overseas. Between GNP and GDP, there is a distinction made by the addition and subtraction of international revenue. The most popular method for determining a country's output, which includes goods and services, is the gross national product. NNP takes the depreciation factor into account.
- The deterioration of fixed assets is known as depreciation. It also serves as the funding source for stock maintenance. NNP is defined as GNP minus depreciation.
- Economics also adds the government subsidies given to promote the production of products and services to the taxes when calculating NNP.
- NNP - Taxes + Subsidies is the formula for national income accounting.
- The total revenue that a nation has available to meet its needs without selling any of its assets is referred to as its national disposable income.
- The net income received by residents and individuals is referred to as private income. Foreign-earned income, interest on the national debt, current payments from the government, and net transfers from the rest of the world are all examples of private income.
- An economy's income and expenditure can be managed by fiscal policy. Since political intents could impact it, economists generally do not prefer this because it is directly controlled by the government. The Central Bank, which oversees all monetary matters, controls monetary policy. The objectives of this strategy are to stabilise prices and strengthen the country's currency.
- It also brings the GDP into balance and lowers unemployment. In order to distribute wealth and establish equilibrium, the central bank can buy and sell bonds. Economists strongly favour this course of action because the Central Bank, an independent body, has the deciding influence.
Thus, the study of a bigger picture and managing the entire country is called national income accounting.
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