National Income
National income is a measure of the total value of goods and services produced in a country over a given period, usually a year. Simply, it is the total amount of income earned by the citizens of a nation. The term national income normally refers to the Gross National Product (GNP) of a country in a given year. GNP is a measure of the total market value of final goods and services produced by all the citizens of a nation in a year.
There are three main approaches to measuring National Income these are;
1. The Income Approach
2. The Output/Product Approach
3. The Expenditure approach.
The Income Approach
This approach uses the total flow of income earned from production of goods and services in a current period of time. The main factor incomes are as follows;
Labour compensation includes wages, salaries, benefits, pension’s social security and health scheme.
Rent to land owners and resource supply, Net interest from domestic business, proprietors income from incorporated business, sole proprietorships, partnerships and cooperatives.
They also include corporate profits and taxes on production and import.These income components sum to net domestic income at factor cost.
Two adjustments must be made to get GDP:
1. Indirect taxes minus subsidies are added to get from factor cost to market prices.
2. Depreciation (or capital consumption) is added to get from net domestic product to gross domestic product
Advantages of using Income approach as a measure of National Income
1) The income approach is the most suitable for evaluating individual intangible assets. It may be misleading to evaluate intangible assets such as knowledge or other intellectual property using the cost approach as real economic benefits and value of such intangibles are different and often far above the cost invested. Equally, applying the market approach to intangible assets is also very limited as usually there is no truly comparable business
2} The income approach however
There are three main approaches to measuring National Income these are;
1. The Income Approach
2. The Output/Product Approach
3. The Expenditure approach.
The Income Approach
This approach uses the total flow of income earned from production of goods and services in a current period of time. The main factor incomes are as follows;
Labour compensation includes wages, salaries, benefits, pension’s social security and health scheme.
Rent to land owners and resource supply, Net interest from domestic business, proprietors income from incorporated business, sole proprietorships, partnerships and cooperatives.
They also include corporate profits and taxes on production and import.These income components sum to net domestic income at factor cost.
Two adjustments must be made to get GDP:
1. Indirect taxes minus subsidies are added to get from factor cost to market prices.
2. Depreciation (or capital consumption) is added to get from net domestic product to gross domestic product
Advantages of using Income approach as a measure of National Income
1) The income approach is the most suitable for evaluating individual intangible assets. It may be misleading to evaluate intangible assets such as knowledge or other intellectual property using the cost approach as real economic benefits and value of such intangibles are different and often far above the cost invested. Equally, applying the market approach to intangible assets is also very limited as usually there is no truly comparable business
2} The income approach however