National Income Accounting Concepts

National Income Accounting involves the measurement of a nation’s economic activity. Several key concepts are used:

1. Gross Domestic Product (GDP)

• Measures the total value of all goods and services produced within a country in a given period.
• Example: If a country produces cars, electronics, and agricultural products, GDP adds up the total market value of all these goods and services.

2. Gross National Product (GNP)

• GDP plus the net income earned from abroad, such as wages, dividends, and interest.
• Example: If a country’s companies earn income from foreign investments, this is included in GNP.

3. Net National Product (NNP)

• GNP minus depreciation (the loss in value of capital goods like machinery over time).
• Example: If machines wear out during production, NNP reflects the net production value after considering this depreciation.

4. Personal Income (PI)

• The total income earned by individuals and households, including wages, interest, and dividends.
• Example: Salaries, interest from savings, and dividends from stocks are all part of PI.

5. Disposable Income (DI)

• The income remaining after taxes, which is available for spending or saving.
• Example: After paying income tax, the remaining income that can be spent on goods and services is disposable income.