National Income Practice Flashcards

This set of vocabulary flashcards covers the fundamental definitions, measurement approaches, and accounting concepts related to National Income as presented in the lecture notes.

National Income

The sum total of monetary value of all goods and services produced in a country during a given period of time, including factor incomes such as wages, rent, interest, and profit.

Income Approach

A way of measuring national income by adding the sum total of all incomes earned by the factors of production (labour, land, capital, and entrepreneurs) in a country in a year.

Output Approach

Also known as the product approach, it is the sum total of the monetary value of final goods and services produced by various sectors (primary, secondary, and tertiary) in a country within a year.

Expenditure Approach

A measurement of national income reached by adding up the total spending made in a country on final products in a year, using the formula $GDP = C + I + G + (X - M)$.

Value-added method

A calculation method where the value added at every stage of production is summed, or only the final price of the commodity sold to the consumer as a finished good is used.

Double counting

The tendency for a national income accountant to add the prices of commodities at multiple stages of production or include transfer payments, leading to an overestimation of national income.

Final Goods

Goods used either for final consumption or for investment that are not meant for resale.

Consumer Goods

Goods bought by consumers as final or ultimate products to satisfy their wants.

Capital Goods

Goods used in the production of other goods and services.

Gross Domestic Product (GDP)

The market value of final goods and services produced in a year within a country, regardless of whether the output is produced by foreigners.

Gross National Product (GNP)

The market value of final goods and services produced in a year by a country’s nationals, irrespective of where they lived.

Depreciation (Capital Consumption Allowance)

The wear and tear of capital equipment over time.

Net Factor Income from Abroad (NFYA)

The income from Ghanaians living Abroad less the income of foreigners living in Ghana.

Personal Income (PI)

Income received by individuals for productive work, including all sources such as pension payments, welfare payments, and employment insurance benefits.

Disposable Income (DI)

The income received by an individual that gives them command over goods, calculated after deducting personal income taxes and social security contributions from National Income.

Domestic Income

The sum total of factor incomes generated within the domestic economy, regardless of whether the income accrues to residents or non-residents.

Net National Product (NNP)

The value calculated as $GNP - \text{depreciation}$.

Subsistence Problem

A problem in measuring national income involving goods and services produced for personal use and not for sale, which are often excluded from official records.

Fringe Benefits

Non-monetary rewards such as free accommodation or medical services that should be added to national income as they are earned through services offered.

Transfer Payment

Payments such as remittances to parents or income received by pensioners that are deducted in the income approach to avoid double counting.

Nominal GDP

The value of output measured in the prices that existed during the year in which the output was produced (current prices).

Real GDP

The value of output measured in the prices that prevailed in a specific fixed base year (constant prices).