Measures Of National Income And Output

Measures of national income and output are used in economics to estimate the value of goods and services produced in an economy. They use a system of national accounts or national accounting first developed during the 1940s. Some of the more common measures are Gross National Product (GNP), Gross Domestic Product (GDP), Gross National Income (GNI), Net National Product (NNP), and Net National Income (NNI).

Also, a variety of alternative accounting measures have been proposed. Formerly, in the Soviet Union and its allies COMECON, an alternative measure called Net Material Product (NMI) was reported. Currently, some measures have been proposed to improve the accounting of changes in environmental assets; in this context the United States Congressional Budget Office concludes, "a gradual process of modifying measures of national economic performance is consistent with the history and development of the national accounts.

There are various ways of calculating these numbers. The expenditure approach determines aggregate demand, or Gross National Expenditure, by summing consumption, investment, government expenditure and net exports. The income approach and the closely related output approach sum wages, rents, interest, profits, non-income charges, and net foreign factor income earned. The three methods must yield the same result because total expenditures on goods and services (GNE) must by definition equal the value of goods and services produced (GNP) which must equal total income paid to the factors that produced the goods and services (GNI).

In fact, minor differences are obtained from the various methods due to changes in inventory levels. This is because goods in inventory have been produced (and therefore included in GDP), but not yet sold (and therefore not yet included in GNE). Similar timing issues can also cause a slight discrepancy between the value of goods produced (GDP) and the payments to the factors that produced the goods, particularly if inputs are purchased on credit.