Concept and measurement of national income, JKSSB FAA

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National income is a measure of the total economic activity in a country, typically measured as the total value of goods and services produced within a given period (usually a year). There are three different ways to measure national income: gross domestic product (GDP), gross national product (GNP), and net national income (NNI).

Gross domestic product (GDP) is the most widely used measure of national income. It is the value of all goods and services produced within a country's borders in a given period of time (usually a year), regardless of the nationality of the producer. GDP is used to measure the size and growth of a country's economy.

Gross national product (GNP) is similar to GDP, but it includes the net income that residents of a country receive from abroad. This includes income from investments and other activities in foreign countries. GNP is used to measure the economic well-being of a country's residents.

Net national income (NNI) is equal to GNP minus the depreciation of a country's capital stock. It is used to measure the amount of income available for distribution among a country's residents after the cost of replacing worn-out capital has been taken into account.

Measuring national income is important because it helps policymakers and economists understand the current state of a country's economy and make informed decisions about economic policy. It also provides a way to compare the economic performance of different countries.

In order to understand the concept more, It is also important to know about :

  • GDP deflator,
  • Real GDP and Nominal GDP,
  • Consumption, Investment, Government spending, Net Exports as the components of GDP,
  • GDP per capita,
  • GDP and standard of living, GDP and economic growth.  

  • GDP deflator: The GDP deflator is a measure of the price level of all the goods and services included in GDP. It is used to adjust GDP figures for inflation, so that they reflect the "real" growth of the economy (i.e., growth that is not due to changes in prices). The GDP deflator is calculated as the ratio of nominal GDP to real GDP, multiplied by 100.

  • Real GDP and nominal GDP: Real GDP is GDP that has been adjusted for inflation. It is a measure of the "real" growth of the economy, as it reflects changes in the quantity of goods and services produced rather than changes in prices. Nominal GDP, on the other hand, is GDP that has not been adjusted for inflation. It reflects the current prices of goods and services, rather than their constant prices.

  • Consumption, Investment, Government spending, Net Exports as the components of GDP: GDP is made up of four main components: consumption, investment, government spending, and net exports. Consumption is the value of goods and services purchased by households. Investment is the value of goods and services purchased by businesses. Government spending is the value of goods and services purchased by the government. Net exports is the value of goods and services exported by a country minus the value of goods and services imported by the country.

  • GDP per capita: GDP per capita is a measure of the average economic activity per person in a country. It is calculated by dividing GDP by the total population. GDP per capita is used as an indicator of a country's standard of living.

  • GDP and standard of living: GDP is often used as an indicator of a country's standard of living. In general, a higher GDP per capita is associated with a higher standard of living, as it indicates that there is more economic activity per person and that resources are more widely distributed. However, it is important to note that GDP per capita does not take into account factors such as inequality, poverty, or the distribution of resources.

  • GDP and economic growth: GDP is also closely linked to economic growth. Economic growth is typically defined as an increase in real GDP over time. When real GDP increases, it indicates that the economy is growing and that more goods and services are being produced. Economic growth is often seen as a sign of prosperity, as it typically leads to more jobs, higher wages, and improved living standards.

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