Unit II

National Income Accounting

National income accounting is defined as a
system used to estimate national income and its
components, an approach to measuring an
economy’s aggregate performance.
National income data reveals the aggregate
economic performance of the national economy
as a whole. It represents as a receipt total, an
expenditure total and the total value of
production.
National Income Accounting

Economic Resources
Human resources  labour, entrepreneur
Natural resources  land
Physical resources  capital
Economic sectors
Primary sectors  all types of agricultural activities,
mining, forestry, etc.
Secondary sector  all types of manufacturing and
construction
Tertiary sector  all types of nursing business 
banking and insurance, health and education, trade
and commerce, etc.
Qx (Wheat) = f(land, labour. Capital…)
Qy (Noodle) = f(land, labour. Capital…)
Qz (banking service) = f(land, labour. Capital…)
National product = Qx + Qy + Qz
Or National product = f(land, labour, capital,…)

Conclusion
 NI is the result of combine contribution of all economic
resources (i.e., NR, PR and HR).
 NI is the net monetary value of final products produced
from all productive sectors (i.e., PS, SS and TS) in a country
for a specified period of time.
 NI = PxQx + PyQy + PyQz
or, NI = PxQx + PyQy + ……… + PnQn
Net factor income from abroad should be added to
national income.

There is a triple identity; National output = National

Income = National expenditure (NO =NI =NE).

It is a flow concept, not a stock. In other words, it is

flow of final goods and services reduced from all
economic sectors in a country for a specified period
of time.
Various Concepts of National Income
In Terms of Market Price
Gross Domestic Product at Market Prices (GDPMP)
It is the total monetary value of the final goods and
services produced from all productive sectors (i.e.
primary sector, secondary sector and tertiary sector)
within the domestic territory of a country within a
specific period of time.

GDPMP = total product of primary sector + total

product of secondary sector + total product of tertiary
sector.
n

Symbolically, GDPMP = p Q
i 1
i i

or, GDPMP = (Px.Qx + Py.Qy + ............. + Pn.Qn)

Further, on expenditure basis,
GDPMP = C + I + G + (X – M)
where
C = Private Consumption Expenditure
I = Gross Private Domestic Investment
G = Government Expenditure 
X – M = Net Exports
Gross National Product at Market Price (GNPMP)
GNP at market price is the total monetary value of all
final goods and services produced annually in a
country for a specified period of time plus net factor
income from abroad.
GNPMP = C + I + G + (X – M) + (R – P)
or, GNPMP = GDPMP + NFIA

Net National Product at Market Price (NNPmp)

NNPmp is the net value of final goods and services
produced from all productive sectors evaluated at
market prices in the course of given period of time.
NNPMP = GNPMP – Depreciation
Or, NNPMP = Private consumption expenditure (C) +
Net private domestic investment (Int) + Govt
expenditure (G) + Net exports (X – M) + Net receipts
(R – P)
In Terms of Factor Cost
Gross Domestic Product at Factor Cost (GDPFC)
It is the sum total of earnings received by various
factors of production in terms of compensation of
employees, interest, rent, profits, etc. within the
domestic territory of a country.
Thus,
GDPFC = Compensation of employees + Interest +
Rent + Profits + Mixed income + Depreciation
or, GDPFC = GDPMP – Net Indirect Taxes
Net Domestic Product at Factor Cost (NDPfc)
Net domestic product at factor cost is the estimate of
the domestic product in terms of earnings of factors
of production within the domestic territory of a
country. It is also known as domestic factor income
receipts.
Thus,
NDPFC = Compensation of employees + Rent +
Interest+ Profits + Mixed income
or, NDPFC = GDPFC – Depreciation

Net domestic product at factor cost (also known as

domestic factor income receipts) includes the
following:
1. Compensation of Employees.
Compensation of employees = Employer’s
contribution to social security (or social security
contribution by employer) + wages and salaries
(Wages and salaries and other payments made in
cash and kind such as bonus, commission, overtime,
housing, medical and educational facilities)
2. Operating Surplus.
Operating surplus = Rent + net interest + profits
3. Mixed Income.

Gross National Product at Factor Cost (GNPFC)

It is the sum total of earnings received by various
factors of production in terms of wages, rent,
interest, profits, etc by the normal residents of a
country.
GNPFC = Compensation of employees + Rent +
Interest+ Profits + Mixed income + Depreciation +
Net factor income from abroad
or, GNPFC = GDPFC + NFIA
or, GNPFC = GNPMP – Net indirect Taxes
Net National Product (NNPFC) or National
Income (NI)
It includes net income evaluated on factors of
production through participation in the
production process such as compensation of
employees, interests, rents, profits. It is also
called National Income.
NNPFC = Rent + compensation of employees
+ Interest + Profits + mixed income + Net
factor income from abroad
or, NNPFC = NNPMP - Net indirect taxes 
or, NNPFC = GNPFC - Depreciation
or, NNPFC = NDPFC + NFIA
NOTES:
1. Only those economic values are evaluated in
calculating GDP / NDP / GNP / NNP in both
market price and factor cost which add
productive capacity of the economy.

2. Some economic values such as capital gains,

secondhand sales, illegal income, transfer
payments, etc. are excluded from GDP /
NDP / GNP / NNP in both market price and
factor cost which do not add productive
capacity of the economy.
Significance of Depreciation
A. Conversion of Gross Product into Net
Product
i. NDPMP = GDPMP – depreciation
ii. NNPMP = GNPMP – depreciation
iii. NDPFC = GDPFC – depreciation
iv. NNPFC = GNPFC – depreciation

B. Conversion of Net Product into Gross

Product
i. GDPMP = NDPMP + depreciation
ii. GNPMP = NNPMP + depreciation
iii. GDPFC = NDPFC + depreciation
iv. GNPFC = NNPFC + depreciation
Significance of Net Factor Income from
Abroad [NFIA or (R – P)]
A. Conversion of National Product to
Domestic Product
i. GDPMP = GNPMP – NFIA
ii. NDPMP = NNPMP – NFIA
iii. GDPFC = GNPFC – NFIA
iv. NDPFC = NNPFC – NFIA
B. Conversion of Domestic Product to
National Product
i. GNPMP = GDPMP + NFIA
ii. NNPMP = NDPMP + NFIA
iii. GNPFC = GDPFC + NFIA
iv. NNPFC = NDPFC + NFIA
Concept of Net Indirect Taxes

A. Conversion of factor cost value into market

price value
i. GDPMP = GDPFC + net indirect taxes
ii. NDPMP = NDPFC + net indirect taxes
iii. GNPMP = GNPFC + net indirect taxes
iv. NNPMP = NNPFC + net indirect taxes

B. Conversion of market price value into

factor cost value
i. GDPFC = GDPMP – net indirect taxes
ii. NDPFC = NDPMP – net indirect taxes
iii. GNPFC = GNPMP – net indirect taxes
Personal Income (PI)
Personal income is the total income earned by
the households or individuals of a country
from all possible sources before paying direct
taxes in a year.
PI = NI – (undistributed profits + corporate
income taxes + social security contribution -
transfer payments)
Example
Let, company A declares its total profit Rs
2000000 for fiscal year 2013/14. Firstly, it
pays Rs 200000 corporate profit taxes
(10%) and retains Rs 1000000 as a form of
undistributed profit by itself. Finally, it
distributes Rs 800000 as dividends to its
shareholders. Dividends are termed as the
personal income of the shareholders.
NOTE: While calculating personal income,
both corporate profit taxes and retained
earnings must be deducted.
Similarly, worker B is the employee of
company A and he draws monthly salary
Rs 20000. Due to the provision of 10%
provident fund, he draws only Rs 18000 at
current period. As per the provident fund
system, company A (as the employer) adds
Rs 2000 in his provident fund account.
Here,
Wage/ salary of employee B = Rs 20000
Employee's contribution to social
security = Rs 2000
Employer's contribution to social
security = Rs 2000
Social security contribution = Rs 4000
NOTE:
(i) While calculating personal income, social
security contribution (= Rs 4000) must be
deducted.
(ii) While calculating compensation of
employees, employer's contribution to social
security must be added with wages and salaries
[i.e., compensation of employees = wages and
salaries (= Rs 20000) + Employer's
contribution to social security contribution (=
Rs 2000) = Rs 22000]
(iii) Income received by worker's from company
A is Rs 22000
(iv) To compute compensation of employees,
the term employer's as a prefix or suffix must
(i) current transfers from government with
national debt interest
(ii) current transfers from business sector
and
(iii) current transfers from rest of the
world.
Disposable Income (DI)
Disposable income is that part of the
personal income which the individual or
households of a country can spend the
way they like. It is obtained by deducting
the direct taxes or personal taxes from
personal income.
DI = PI – Direct taxes
Further,
DI = C + S or DI = C + I
where,
C = Consumption, I = Investment, S =
Saving, DI = Disposable Income

Saving
Saving is defined as the excess of
disposable income over consumption
expenditure. According to Keynes,
“Current saving is the difference between
current income and current consumption.”
Thus, S = DI (or Yd) – C, or, St = Yt – Ct.
Saving may be classified as private saving (i.e.
sum of personal saving and business saving)
and government saving. It is also called
national saving.
 
Per Capita Income
It is the average income of the people of a
country in a particular year. It is the national
income divided by the total population of a
country for respective years. Thus,
Per Capita Income (2014) = National income 2014
Total population 2014
Real GDP, Nominal GDP, GDP Deflator
Nominal GDP is the total monetary
value of the final product in terms of
current market prices produced from all
productive sectors within a country
during a year.

Thus, Nominal GDP = P0Q0 + P1Q1 +

P2Q2 + ......... + PnQn). If GDPMP rises
from one year to the next, one of two
things must be true:
(1) the economy is producing a larger
output of goods and services, or
(2) goods and services are being sold at
higher prices.
It is the total monetary value of final
goods and services produced from all
productive sectors in terms of constant
prices (or base year prices) within a
country during a year.
Thus, real GDP = P0Q0 + P0Q1 + P0Q2
+ ......... + P0Qn
The GDP deflator measures the current level
of prices relative to the level of prices in the
base year.
Nominal GDP
GDP deflator = × 100
Real GDP
On the basis of GDP deflator, rate of inflation
between any periods of time is the ratio of
change in GDP deflator over previous GDP
deflator and multiplied by 100. Thus,
Change in GDP deflator
Rate of inflation (r) = GDP deflator for previosu year
×100
Numerical Example
Computation of Nominal GDP, Real GDP, GDP
Deflator and Rate of Inflation
Year PX QX PY QY
2009 Rs 10 1000 Rs 20 500
2010 Rs 20 1500 Rs 30 1000
2011 Rs 30 2000 Rs 40 1500
Year Computation of Nominal GDP
2009 (10 × 1000) + (20 × 500) = Rs 20000
2010 (20 × 1500) + (30 × 1000) = Rs 60000
2011 (30 × 2000) + (40 × 1500) = Rs 120000
Numerical Example
Computation of Nominal GDP, Real GDP, GDP
Deflator and Rate of Inflation
Year Computation Real GDP (Base Year 2006)
2009 (10 × 1000) + (20 × 500) = Rs 20000
2010 (10 × 1500) + (20 × 1000) = Rs 35000
2011 (10 × 2000) + (20 × 1500) = Rs 50000
Year Computation of GDP Deflator
2009 (20000/ 20000) × 100 = 100
2010 (60000/ 35000) × 100 = 171
2011 (120000/ 50000) × 100 = 240
Year Computation of Rate of Inflation
2009 --
2010 (171 – 100) / 100 × 100 = 71%)
2011 (240 – 171) / 171 × 100 = 40.35%)
Difference between NGDP and RGDP
1. NGDP is calculated in terms of current
market price whereas RGDP is calculated
in terms of constant market price.

2. Any change in NGDP mainly depends

upon change in price, not the output.
Hence, it does not reflect real performance
of the economy. But any change in RGDP
mainly depends upon change in output,
not the price. It shows the actual trends of
employment, income and output. Hence, it
reflects real performance of the economy.
Methods of Measuring National Income
Expenditure Method (or Spending Approach)
The expenditure method measures GDP as the
aggregate of all the final expenditure on gross
domestic product at market price in an economy
during an accounting year.
Symbolically,
GDPmp = C + I + G + (X – M)
GNPmp = C + I + G + (X – M) + (R – P)
NNPmp = GNPmp – Depreciation
where
C = Private consumption Expenditure, I = Gross
Private Domestic Investments. G = Government
Expenditure (Public Consumption and Investment
Expenditure), X = Export Earnings, M = Import
Expenses, R = Receipts from abroad, P = Payments
made to abroad
Components of Expenditure Method
1. Private (or Personal) Consumption Expenditure
(C)
It includes all types of expenditure made on final
goods and services, including those produced
abroad by the individuals or households of a
country. It comprises
(i) expenses on durable goods like watch,
furniture, vehicle etc., (but not residential
houses, which are classified under investment),
(ii) expenditures on non-durable goods like milk,
rice, clothes etc. and
(iii)the expenditure incurred on services of all kinds
like fees paid to doctors and lawyers, and bills
paid for transport and communication.
2. Gross Private Domestic Investment or Gross Capital
Formation( I)
i. Non-residential investment
ii. Residential
iii. Changes in business inventories
iv. Depreciation.
Gross private domestic investment may also be
classified as:
(i) I = Net fixed investment (or net fixed capital
formation) + Changes in inventories + Depreciation
(ii) I = Net investment (or net capital formation) +
Depreciation
(iii) I = Gross fixed investment + Changes in
inventories
(iv) I = Gross fixed capital formation + Changes in
inventories
3. Government Expenditure (G)
Expenditures made by the government (central, state
or local) on final goods or services, including those
produced abroad are a part of GDE (GDP).
These expenditures are also divided into government
consumption expenditure and government
investment expenditure.

4. Net Exports or Net Foreign Investment (X – M)

It means the difference between export earnings and
import expenses. Every country exports to or imports
from foreign countries.
Net foreign investment is defined as the amount
which foreigners spend on domestic goods and
services and which exceeds our spending on foreign
goods and services.
5. Net factor Income from Abroad (NFIA) or Net
Receipts (R – P)
Net factor income abroad is the difference between
the factor income received from abroad by normal
residents of Nepal for rendering factor services in
other countries and the factor incomes paid to the
foreign residents for their factor services within the
domestic territory of Nepal.

Net factor income earned from abroad has the

following three components:
a. Net compensation of employees
b. Net income from property (rent and interest and
income from entrepreneurship).
c. Net retained earnings of the resident companies
working in foreign countries.
Income Method (or Share Distributive Approach)
It is the method which measures GDPFC/GNPFC from
the side of payments made in the form of
compensation of employees, rent, interest and profits
to the primary factors of production i.e., labour, land,
capital and enterprise respectively for their productive
services in an accounting year.
GNP is the sum total of following items or
components:
1. Rents
Rents=Rent of land, machine and buildings +royalties

2. Compensation of Employees
3. Net Interest or Business Interest Payments
4. Profits: National income accountants put
accounting profit into two categories: proprietors net
income and corporate profits.
Corporate profit = Corporate income
Undistributed profit = Retained earnings

Personal Income = NI – (CPT + UP + SSC – TP)

Total profit of company A = Rs 2000000

– Corporate profit taxes (= 10%) = Rs 200000
– Undistributed profits = Rs 900000
Corporate dividends = Rs 900000
Salary of worker X in company A = Rs 20000/m
– Provident fund(=10%) = Rs 2000
Salary at current period = Rs 18000

PF Account = Rs 2000 (Employee’s contribution to

social security ) + Rs 2000 (Employer’s contribution
to social security)
= Social security contribution (or social insurance
payments = Rs 4000)

Compensation of employees = 20000 + 2000 = Rs

22000

Transfer payments = Current transfers from govt +

Current transfers from business + Current transfers
from rest of the world
- Proprietor’s incomes are incomes received by sole
proprietorships, partnerships, professional
associations and incorporated firms
-corporate profits are the incomes of corporate
businesses (i.e. income of joint stock company and
public enterprises).

5. Mixed income of self-employed

6. Depreciation (or Capital Consumption Allowance or

Consumption of Fixed Capital)

7. Net Factor Income from Abroad (or Net Receipts)

8. Net Indirect Taxes

According to the Income Method,
NDPfc (or domestic factor income receipts) =
Compensation of employees + Rents +
Interests + Profits + Mixed Income

or, NDPFC = Compensation of employees +

operating surplus + mixed income
or, GDPfc = NDPfc + Depreciation
or, GDPmp = GDPfc + Net indirect taxes
or, NNPfc = NDPfc + Net factor income from
abroad
or, NNPmp = NNPfc + Net indirect taxes
or, GNPfc = NNPfc + Depreciation
or, GNPmp = GNPfc + Net indirect taxes
Product Method (or Inventory Approach)

The product method is the method which measures

the contribution of each producing enterprise to
production in the domestic territory of the country in
an accounting year.
Goods and services produced during a period of time
may be classified as either intermediate goods and
services or final goods and services.
Final goods are those goods which are purchased for
final use and not for sale or further processing. They
are the end products of a process.
Intermediate goods and services are those which are
used up in the production of other goods and services
in the same period that they themselves were
produced.
Components
The main components of product method are as
follows:
a. Primary sector which includes agro-products
(food crops, cash crops, animal husbandry,
horticulture, etc.), fishery, forestry, mining,
querying and so on.
b. Secondary sector, which includes manufacturing,
construction, electricity, gas, water supply and
others.
c. Tertiary sector, which includes all types of
nursing business like banking and insurance,
transport and communication, trade and
commerce, health and education and other
services.
d. Net factor income from abroad
Problem of Double Counting
1. Final Product Method
In this method, GDPMP is estimated by finding the
market value of final goods and services produced in
the economy.
GDPMP = Value of output – Value of intermediate
goods
or, GDPMP = (PXQX + PYQY + ....... + PnQn) – cost of
intermediate goods
2. Value Added Method
In this method, instead of taking the market value of
the final products, the value added or created at
different stages of production is counted for
estimating GDPMP.
Thus, according to this method, GDPMP is the sum
total of the value added by different producing units
in their production process.
Net value added = Gross value added - Cost
of intermediate goods.
Gross value added = NVAX + NVAY+ ...... +
NVAn
Gross Cost of
Stage of Production Value of Intermediate Net Value Added
Output Goods
Wheat 2000 200 1800
Flour 3200 2000 1200
5000
Bread 3200 1800
++
Total 10200 5400 4800 +

+ + GDPMP at Final Product Method

+ GDP at Value Added Method
 Thus, the net value added by all stages of production is Rs
4800, i.e.,
Net value added by the farmer
= Rs. 2000 – Rs. 200 = Rs. 1800
Net value added by the miller
= Rs. 3200 – Rs. 2000 = Rs. 1200
Net value added by the baker
= Rs. 5000 – Rs. 3200 = Rs. 1800
Total value added by all stages of production (or GDPmp) =
Rs. 10200 – Rs. 5400 = Rs. 4800
According to the final product method,
GDPMP is equal to the total value of output
minus cost of intermediate goods. Thus,
GDPMP = gross value of output – cost of
intermediate goods
= (2000+3200+5000) – (200+2000+3200)=
Rs 4800

Example
Suppose that the economy produces three
goods: wheat, flour, and bread. All of the
wheat is sold to millers. All of the flour is sold
to bakers. Consumers buy the bread from the
bakers. The income and expenditure accounts
a. Calculate Expenditure Receipts
(nominal) GDP (billions) (billions)
using the final Wheat industry
goods approach. Wages $40 $50
b. Calculate
Dividends $0 $110
(nominal) GDP Interest $10 $200
using the value- Wages Flour industry
added approach. Purchases of wheat $30
Dividends $50
c. Calculate Interest $15
(nominal) GDP Wages $15
using the income
approach.
Purchases of flour Bread industry
Dividends $60
d. Compare the Interest $110
three answers. $30
$0
Solution
a. According to final product method,
GDPMP = Gross value of output – Cost of
intermediate goods
= (PWQW + PFQF + PBQB) – Cost of intermediate
goods in three industries
= (50 + 110 + 200) – (0 + 50 + 110)
= $ 200

b. Value Added in wheat = $50 – $0 = $50

Value added in flour = 110 – $50 = $60
Value added in bread = $200 – $110 = $90
Total value added = $50 + $60 + $90 = $200
c. Total wages - $40 + $30 + $60 = $130
Total dividends = $0 + $15 + $30 = $45
Total interest = $10 + $15 + $0 = $25
Total income = $130 + $45 + $25 = $200
Hence, GDPFC = $200 according to income approach.
GDPMP = GDPFC + NIT = 200 + 0 = $200

d. GDP = $200 according to each method. It satisfies

the concept of triple identity of GDP.

2. A purchases goods worth Rs.50, 000 from X and

sells the goods to B for Rs.10, 000 and to C for
Rs.70,000. B purchases goods worth Rs.20, 000 from
Y and sells the goods to C for Rs.15,000 and to
households for Rs.40, 000. C purchases goods from Z
worth Rs.15,000 and sells the goods to households
for Rs.1, 70,000. Calculate the total value added.
Industries Sales price (Rs.) Purchase Price (Rs.) Net Value
Added (Rs.)
X Sells to A 50,000 0 50,000
Sells to B 10,000 Purchases from X
A 30,000
Sells to C 70,000 50,000
Purchases from A
Sells to C 15,000
10,000
B Sells to households 25,000
Purchases from Y
40,000
20,000
Y Sells to B 20,000 0 20,000
Z Sells to C 15,000 0 15,000
Purchases from A
70,000
Sells to households Purchases from B
C 70,000
1,70,000 15,000
Purchases from Z
15,000
Total 3,90,000 1,80,000 2,10,000
Solution
Net Value Added = Sales price - Cost price =
Rs 3,90,000 – Rs 1,80,000 = Rs 2,10,000
GDPMP = Rs 210000
Alternatively,
GDPMP = NVAX + NVAA + NVAB + NVAY + NVAZ
+ NVAC
= 50000 + 30000 + 25000 + 20000 + 15000
+ 70000
= Rs 210000
3. Suppose you have to estimate gross national
product at market prices (GNPMP) and gross
national product at factor cost (GNPFC) from
the data below.

i. 1000 quintals of sugar are produced during

the year 2011, price of sugar is Rs 6000 per
quintal.

ii. 6000 quintals of rice are produced during

the year 2011, price of rice is Rs 5000 per
quintals.
iii. 100 tons of steel are produced during the
same year, price of steel is Rs 30000 per ton.

iv. Raw material valued at Rs 200000 are

consumed by industries.

v. Government realizes taxes worth Rs 90000

from the producing sector.

vi. Government provides subsidies valued at Rs

48000.
Solution
According to final product method,
GDPMP = Gross value of output – Cost of
intermediate goods
Here, Gross value of output = PSQS + PRQR +
PStQSt = (6000×1000) + (5000×6000) +
(30000×100) = 6000000 + 30000000 +
3000000 = 39000000
Cost of intermediate goods = Value of raw
materials consumed by industries = 200000
 GDPMP = 39000000 – 200000 = 38800000
GNPMP = GDPMP + NFIA = 38800000 + 0 =
38800000
GNPFC = GNPMP – (t – S) = 38800000 – (90000 –
Difficulties in Measurement of National
Income
Estimating of national income is quite a
complicated task. It is beset with
difficulties of various kinds. These
difficulties can be broadly classified into
two categories: (a) conceptual difficulties,
and (b) practical difficulties.
Conceptual Difficulties
Conceptual difficulties relate to the definitions
of the concepts of national income. Some of
the important conceptual difficulties are:
1. Inclusion of Services
2. Identifying Intermediate Goods
3. Identifying Factor Incomes
4. Services of Housewives and other Similar
Services
5. Imputing Unpaid Services
6. Income of the Foreign Companies
7. Valuation of Inventory Changes
8. Estimation of Depreciation
Practical Difficulties

1. Lack of Occupational Specialisation

2. Double counting
3. Non-Monetised Sector
4. Inadequate Information
5. Unreported Illegal Income
6. Non-Availability of Reliable Statistical
Data
Importance and Uses of National Income
1. To compute standard of living
2. To measure growth rate
3. To examine the behavior of economic
sectors
4. To examine nature of fluctuation in price
level
5. To forecast business activities
6. To evaluate structure of the economy
7. To examine production possibilities
8. Basis of economic planning
List of Formulas for National Income Accounting

1. Gross Domestic Product at Market Price

(GDPmp) = Total product of primary sector + Total
product of Secondary sector + Total product of
tertiary sector
2. Gross National Product at Market Price (GNPmp)
= GDPmp + Net Factor Income from Abroad (NFIA).
3. Net National Product at Market Price (NNPmp) =
GNPmp – Consumption of Fixed Capital (or
Depreciation).
4. Net Domestic Product at Market Price (NDPmp)
= NNPmp – Net Factor Income from Abroad (or Net
Receipts).
5. Net Domestic Product at Factor Cost or Net
Domestic Income (NDPfc) = NDPmp –Indirect
Taxes + Subsidies).
6. Gross Domestic Product at Factor Cost
(GDPfc) = NDPfc + Depreciation
7. Gross National Product at Factor Cost
(GNPfc) = GNPmp – Indirect Taxes + Subsidies
or, GNPFC = GDPfc + NFIA
8. Net National Product at Factor Cost or,
National Income (NNPfc or, NI) = GNPfc –
Depreciation or, NI = NNPmp – Net Indirect
Taxes or, NI = NDPfc + NFIA.
9. Personal Income (PI) = NNPfc – Undistributed
Profits – Corporate Direct Tax – Social Security
Contribution + Transfer Payments.
10. Personal Disposable Income = PI – Personal
taxes (or Direct taxes).
11. Operating Surplus = Rent + Interest +
Profits.
12. Value Added = Value of Output – Value of
non-factor inputs (or Cost of intermediate
goods) = (Sales + Change in Stock) –
Purchases.
13. Changes in Stock = Closing Stock –
Opening stock.
14. Compensation of Employees Includes: (a)
Wages and Salaries in Cash or kind (b)
Employer’s Contribution to social Security
15. Rent Includes: (a) Paid out Rent (b)
Imputed rent on owner occupied houses (c)
Royalties
16. GDPmp (Expenditure Method) =
Government expenditure + Private final
consumption expenditure + Gross capital
formation + Net exports
17. GNPMP = GDPMP + net factor income from
abroad
18. GDPfc = GDPmp – Net Indirect Taxes
19. GDPmp (Income Method) = GDPfc + Net
indirect taxes
20. GDPfc = NDPfc + Consumption of fixed
Capital
21. NDPfc (or domestic factor income receipts)
= Compensation of Employees + Operating
Surplus + Mixed Income
22. Per capita income = NI / total population
(i.e. NI 2014/Total population2014)