INTRODUCTION TO NATIONAL INCOME ACCOUNTING
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MEASUREMENT OF NATIONAL INCOME National Income is calculated by 3 ways: Value Added Method Income Method Expenditure Method
EXPENDITURE METHOD The expenditure method measures the final expenditure on GDP Amount of Expenditure refers to all spending on final goods and services only in an economy. In an economy, there are three main agencies, which buy goods and services. These are : Households, firms and the government >This method is commonly used for calculating GDP for manufacturing sector.
WHAT IS MANUFACTURING SECTOR? It is also known as the secondary sector. >This sector converts the available raw materials (mainly natural resources)into finished products > Thus, there is significant value addition to the resources and in most cases, there is change of form of the raw material Example: Refining oil from crude.
COMPUTATION >This final expenditure is made up of the sum of 4 expenditure items: Consumption: " Personal consumption made by households - The payments of which of which is paid by households . directly to the firms - which produced the goods and services desired by the households
COMPUTATION Investment Expenditure(): - Investment is an addition to capital stock of an economy in a given time period. This includes investments by firms as well as governments sectors " It can be defined as total investment in capital. - Example: Purchase of new housing, plants, equipments and inventory by the private ( or non-government) sector.
COMPUTATION GOvernment Expenditure(G): Government Expenditure(G): - This category includes the value of goods and services purchased by the Government. Expenditures by: central .State and local government - for final goods and services.
CAVEAT Government expenditure on: Scholarships, are not included in this as all of them coome under - Pension schemes - unemployment allowances. transfer payments
COMPUTATION NET EXPORTS(X-IM) Expenditure on foreign made products (Imports) are expenditure that escapes the system, and must be subtracted from total expenditures In turn, goods produced by domestic firms which are demanded by foreign involve expenditure by other economies on our production (Exports) and are included in total Expenditure > The combination of the two gives us Net Exports