Relationship between national income and gdp of countries

Difference Between GDP and National Income | Difference Between | GDP vs National Income

relationship between national income and gdp of countries

GDP, i.e. gross domestic product refers to the aggregate market value of all the finished goods and services produced by a country. On the. Find out the difference between GDP and GNP, and how each of economy to the geographical borders of the country, GNP extends it to. While gross domestic product (GDP) is among the most popular of is very little difference between GNI and gross national product (GNP).

Income and expenditure views of GDP - GDP: Measuring national income - Macroeconomics - Khan Academy

This amount must equal the value of everything produced. Usually, expenditures by private individuals, expenditures by businesses, and expenditures by government are calculated separately and then summed to give the total expenditure.

Also, a correction term must be introduced to account for imports and exports outside the boundary.

Measures of national income and output

The income method works by summing the incomes of all producers within the boundary. Since what they are paid is just the market value of their product, their total income must be the total value of the product. Wages, proprietor's incomes, and corporate profits are the major subdivisions of income. Methods of measuring national income[ edit ] Output[ edit ] The output approach focuses on finding the total output of a nation by directly finding the total value of all goods and services a nation produces.

Because of the complication of the multiple stages in the production of a good or service, only the final value of a good or service is included in the total output. This avoids an issue often called ' double counting ', wherein the total value of a good is included several times in national output, by counting it repeatedly in several stages of production. Their sum gives an alternative way of calculating the value of final output.

relationship between national income and gdp of countries

It focuses on finding the total output of a nation by finding the total amount of money spent. This is acceptable to economists, because, like income, the total value of all goods is equal to the total amount of money spent on goods. The basic formula for domestic output takes all the different areas in which money is spent within the region, and then combines them to find the total output. Frank Shostak quotes Austrian economist Ludwig von Mises: The attempt to determine in money the wealth of a nation or the whole mankind are as childish as the mystic efforts to solve the riddles of the universe by worrying about the dimension of the pyramid of Cheops.

Shostak elaborated in his own criticism: The GDP framework cannot tell us whether final goods and services that were produced during a particular period of time are a reflection of real wealth expansion, or a reflection of capital consumption. In reality, however, the building of the pyramid will divert real funding from wealth-generating activities, thereby stifling the production of wealth Shostak However, using these strictly economic statistics GNP, GDP as attempts to capture the standard of living trends and their mapping in any particular country, has serious problems.

relationship between national income and gdp of countries

Even more problematic is their use in assessing quality of life or "well-being" of the citizens, which is far from a purely economic measure. There are two reasons why these economic statistics tell little or nothing about the well-being of the society, even if taken on a per capita basis. True, we can infer that if GDP or GNP per capita series in constant dollars grows within the short period of years, the standard of living may increase as well; but that is all we can say.

  • Difference Between GDP and National Income
  • Difference between GDP and National Income
  • Difference Between GDP and GNI

As the Austrian economist Frank Shostak stated, as noted above, if any government starts building pyramids, GDP will be growing, yet—as the pyramids have no use for anybody—the standard of living will not Shostak The other reason is that we cannot compare or statistically infer anything regarding two or more environments that are independent from each other. In this case, on the one hand is the economy, and on the other is sociology combined with psychology.

While there are factors that affect both, there is not a correlation, let alone a causal relationship, between them.

relationship between national income and gdp of countries

For example, the distribution of income, not just the aggregate or per capita average, is important in determining the standard of living and sense of well-being of individuals within the country. Imagine an oil -rich developing country where all the monetary growth mapped by GDP, GNP per capita, and so forth goes to a ruling clique and virtually nothing to the rest of the society.

In Eastern Europe under the Communist regimes everybody, with the exception of a few elites, was equally poor no matter what job they didyet the mood, and to large extent even their expression of being content with the situation, and morality though not necessarily ethics were quite high. This can be explained by the fact that the income distribution mapped by the Gini Index showed incredibly high social stratification which, in Europe, historically has led to the society's doldrums Karasek These conditions require the following: Using Marxist principles, those countries sometimes exclude from aggregate output the value of a wide range of services, such as government administration and transportation.

Attention is instead concentrated on output of goods. The exclusion understates GNP and influences planning, which tend to neglect transport, distribution and services.

Difference between GDP and National Income | GDP vs National Income

Aggregate growth rates are overstated since productivity increases more rapidly in the counter goods-producing sectors than in neglected service sectors Herrick and Kindleberger In analysis of historical trends, comparisons with other countrys' trends and, above all, modeling and forecasts, work only with constant data series.

This means that inflation or deflation must be left out of all the data-series Karasek Still a significant problem remains with regard to the question of comparison of the standards of living among several countries.

Then and only then we can have a more precise international comparison of living standards for the given countries. To conclude the almost impossible task of international comparisons of income and output statistics, the warning of Oskar Morgenstern must also be heeded: If the GDP is up, why is America down?

Retrieved December 10, Herrick, Bruce, and Charles P. CAG Portal Forum Karasek, Mirek, Waddah K.

Difference Between GDP and GNI (with Comparison Chart) - Key Differences

Alem, and Wasfy B. The Book Guild Ltd. The Review of Economics and Statistics.

relationship between national income and gdp of countries

Quantitative Aspects of the Economic Growth of Nations. Levels and Variability of Rates of Growth. Economic Development and Cultural Change.