Income and Expenditure Approach

Topics: Gross domestic product, Measures of national income and output, Economics Pages: 3 (458 words) Published: September 12, 2012
Income and Expenditure Approach
Ways of Measuring GNP
Gross National Product (GNP) is the sum of all the final market values of goods and servicesin a given economy at a given period of time. This is the quantitative summary of all transactions of goods and services transacted within the economy in a year. It measures only legal and registered transaction. Non produced transactions are not included such as second hand sale, transfer of payments and buy and sell. Gross domestic product (GDP) is the market value of all officially recognized final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living; GDP per capita is not a measure of personal income. Under economic theory, GDP per capita exactly equals the gross domestic income (GDI) per capita. There are two ways by which GNP may be calculated. These are income and expenditure approach. Income Approach

It calculates national output by adding all the incomes in the economy. This approach takes into account the income of all sectors which are the following: * Rent Income
* Interest Income
* Wages and Salaries
* Profits
* Indirect Business Taxes
I. General Sales Tax
II. Excise Tax
III. Custom Duties
IV. License Fees
V. Business Property Tax
* Capital Consumption Allowance
Expenditure Approach
This approach takes into consideration the expenditures of the four sectors of the economy. This approach became widely used because it is more accurate approach. Total expenditures in the economy are much easier and accurately accounted for than the total income received. National Output of an economy is determined by these equations: 1. GDP= C+I+G+(X-M)

Where: GDP - Gross Domestic Product
C - Private Consumption
I - Private Investment
G – Government expenditure

2. GNP= C+I+G+(X-M)+Remittance from Abroad
Where: GNP – Gross National Product...
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