National Income Determinants and the Economy of Ghana free essay sample

Real national income refers to the current year production of goods and service valued at base year prices. In estimating national income, only productive activities are included in the computation of national income. In addition, only the values of goods and services produced in the current year are included in the computation of national income. Hence, gains from resale are excluded but the services provided by the agents are counted. Similarly, transfer payments are excluded as there is income received but no good or service produced in return. However, not all goods and services from productive activities enter into market transactions. Hence, imputations are made for these non-marketed but productive activities e. g. imputed rental for owner-occupied housing. Thus, national income refers to the market value or imputed value of additional goods and services produced and services performed in the current period. GDP, GNP, NDP and NNP National income in many countries are either in Gross Domestic Product (GDP) or Gross National Product (GNP). We will write a custom essay sample on National Income Determinants and the Economy of Ghana or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Gross Domestic product (GDP) refers to the total value of goods and services produced within the geographical boundary of a country before the deduction of capital consumption. Net Domestic product (NPD) refers to the total value of goods and services produced within the geographical boundary of a country after the deduction of capital consumption. Gross National Product (GNP) refers to the total value of goods and services produced by productive factors owned by residents of the country both inside and outside of the country before the deduction of capital consumption. Net National Product (NNP) refers to the total value of goods and services produced by productive factors owned by residents of the country both inside and outside of the country after the deduction of capital consumption. Relationship between GDP and GNP GNP = GDP + NPIFA (Net Property Income from Abroad) Net Property Income from abroad refers to the difference between income from abroad and income to abroad. Measurement of National Income There are 3 approaches to measure national income i. e. output approach, income approach and expenditure approach Output Approach Output approach measures national income by adding the total value of the final goods and services produced in the year or by adding the value added by each sector of the economy. Where Value added refers to the difference between the value of gross output of all goods and services produced in a given period and the value of intermediate inputs used in the production process during the same period. In distributive trade, value added is the difference between the gross margin and the cost of intermediate inputs. In the banking sector, value added is the difference between the sum of actual and imputed bank service charges and intermediate inputs. For government services and non-profit institutions, value added is the wages and salaries, and depreciation allowance set aside for consumption of fixed capital. The output approach consists of the sum of value added by each sector in the economy i. e. Agriculture and Fishing, Quarrying, Manufacturing, Utilities, Construction, Commerce, Transport and Communication, Financial and Business Services. Income Approach Income approach measures national income by adding the income earned by the factor owners that are residents of the country, undistributed company profits and government income from economic participation. It excludes transfer payments and stock appreciation because transfer payments and stock appreciation are not due to goods and services performed. Value Added and Contributions to a nation’s GDP * There are three main wealth-generating sectors of the economy – manufacturing and construction, primary (including oil gas, farming, forestry fishing) and a wide range of service-sector industries. This measure of GDP adds together the value of output produced by each of the productive sectors in the economy using the concept of value added. . Value added is the increase in the value of goods or services as a result of the production process Value added = value of production value of intermediate goods Say you buy a pizza from Dominos at a price of ? 10. This is the retai l price and will count as consumption. The pizza has many ingredients at different stages of the supply chain – for example tomato growers, dough, mushroom farmers and also the value created by Dominos as they put the pizza together and deliver to the consumer. Some products have a low value-added, for example cheap tee-shirts that you might find in a supermarket for little more than ? 5. These are low cost, high volume, low priced products. Other goods and services are such that lots of value can be added as we move from sourcing the raw materials through to the final product. Examples include jewelry designer, perfumes, meals in expensive restaurants and sports cars. And also the increasingly lucrative computer games industry.