Basic Concepts in National Income

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CHAPTER 2

BASIC CONCEPTS OF NATIONAL ACCOUNTS AGGREGATES
Introduction
2.1 Various concepts of national income and related aggregates used in national accounts connote a particular meaning which may not necessarily conform to the one used in common parlance. It is, therefore, necessary that these are made familiar to the users to enable them to appreciate these in right perspective. It is with this objective that it has been considered necessary to refer to these in this publication. The basic concepts and definitions of the terms used in national 2.4 accounts largely follow those given in the SNA. It is intended to give in the following paragraphs the major concepts used in National Accounts Statistics and the inter relationship particularly of those relating to macro-economic aggregates of national product, consumption, saving and capital formation. taken of the rental of buildings which are owned and occupied by the owners themselves. Own account construction activities are also similarly to be included. However, certain other activities like services of house-wives are excluded from production mainly due to the problem of measurement. Also excluded are illegal activities such as smuggling, black marketing, etc. Another important feature of the measure is that it is an unduplicated value of output or in other words only the value added at each stage of processing is taken into account while measuring the total, i.e., in the measurement of national output a distinction is made between "final" and "intermediate" products and unduplicated total is one that is confined to the value of the final products and excludes all intermediate products. To use a simple example, if the production process during a year involves the production of wheat, its milling into flour and the baking of bread which is sold to consumers then the value of national output should equal the final value of the bread and should not count the separate value of the wheat and flour which have been used up in the course of producing bread. Thus the national product is not the total value of goods and services produced but only the value of the final product excluding the value of inputs of raw materials and services used in the process of production.

National Product
2.2 National product by definition is a measure in monetary terms of the volume of all goods and services produced by an economy during a given period of time, accounted without duplication. The measure obviously has to be in value terms as the different units of production and different measures of services are not directly additive. In the case of a closed economy the measure amounts to domestic product. An important characteristic of this measure is its comprehensiveness. The measure covers all the goods and services produced by the residents of a country. Thus the goods cover all possible items produced, as for example, agricultural crops, livestock and livestock products, fish, forest products, mineral products, 2.5 manufacturing of various consumer items for consumption, machinery, transport equipments, defence equipments etc., construction of buildings, roads, dams, bridges etc. The services similarly cover a wide spectrum including medical and educational services, defence services, financial services, transport services, trading services, domestic services, sanitary services, government services, etc. All goods and services produced during the period have to be included whether they are marketed i.e., exchanged for money or bartered or produced for own use. For example, some of the products of agriculture, forestry and fishing are used for own consumption of producers and therefore an imputed value of these products are also to be included. Similarly, account must also be

National Income

Product

and

National

2.3

The national product measures all goods and services arising out of economic activity while national income is the sum of all incomes as a result of the...
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