National Income and Related Aggregates

Basic Concepts and Aggregates

• Gross Domestic Product at Market Price ($GDP_{mp}$): Market value of all final goods and services produced within the domestic territory of a country during an accounting year.
• National Income ($NNP_{fc}$): Net National Product at factor cost.

Inter-conversion Formulas:

$$\text{Gross} - \text{Depreciation (Consumption of Fixed Capital)} = \text{Net}$$ $$\text{Domestic} + \text{NFIA (Net Factor Income from Abroad)} = \text{National}$$ $$\text{Market Price} - \text{NIT (Net Indirect Taxes = Indirect Taxes - Subsidies)} = \text{Factor Cost}$$

Three Methods of Measuring National Income

1. Value Added Method (Product Method): $$\text{Value of Output} = \text{Sales} + \Delta\text{Stock}$$ $$GDP_{mp} = \sum \text{GVA}_{mp} = \text{Value of Output} - \text{Intermediate Consumption}$$
2. Income Method: $$NDP_{fc} = \text{Compensation of Employees (COE)} + \text{Operating Surplus (Rent, Royalty, Interest, Profit)} + \text{Mixed Income of Self-Employed}$$ $$NNP_{fc} = NDP_{fc} + \text{NFIA}$$
3. Expenditure Method: $$GDP_{mp} = C + I + G + (X - M)$$ Where $C =$ Private final consumption, $I =$ Gross domestic capital formation, $G =$ Government final consumption, $(X - M) =$ Net exports.