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What is National Income Accounting?

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  • Written By: Deneatra Harmon
  • Edited By: R. Halprin
  • Last Modified Date: 24 September 2016
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National income accounting refers to the bookkeeping system that measures the performance of a country’s overall economic activity. Economists usually estimate the financial health and level of economic activity as well as analyze how a country earns and spends its money. Factors used to determine national income levels include gross national product, gross domestic product and gross national income.

The government bookkeeping system of national income accounting focuses not only the level of economic activity, but also on the growth in productivity and the value of goods in a specific time, such as quarterly or yearly. Measurements include the gross national product (GNP), formerly known as the gross national income, which analyzes the dollar value of any goods or services used or purchased by consumers. It also refers to the national income per resident and combines total value of goods and income earned from other countries, minus any payments made to other countries. Gross domestic product (GDP)is the dollar value of goods and services produced in a country.

To calculate national income, economists use specific formulas to determine or predict a country’s economic performance. For example, gross domestic product is calculated through the formula C + G + I + NX = GDP. The “C” refers to national consumer spending, and “G” stands for the total amount of government spending. “I” in the formula refers to the total amount of business capital spending in a particular country, while “NX” is a country’s net exports minus total imports.

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When factoring in the gross national product in relation to national income, a mathematical formula used to determine a country’s total output is C + G + I + NX + NFP = GNP. In this formula, “C” stands for consumer spending for items such as food and clothes. “G” refers to goods and services such as government spending and government salaries. Business spending, inventory, and capital identifies as the “I” in the formula, while “NX” again refers to net exports minus the total imports. Finally, “NFP” indicates the income earned from selling goods and services to others, minus the amount the country pays to the other countries.

National income accounting overall assesses how well a country’s economy is doing by looking at numbers related to total business revenue. It also analyzes the amount of monies spent by businesses and individuals on consumer goods, sales, and income taxes. National income accounting also tracks salaries that domestic and international workers receive and compares the numbers against the financial health of an economy.

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