What is National Income Accounting?
National income accounting is a government accounting system to measure economic activity.
How Does National Income Accounting Work?
For example, national income accounting measures the GDP is its ultimate and most widely used result.earned in the nation's companies, wages paid, or tax .
In 2008, the United Nations Statisticaladopted an updated system of national accounts that is an international standard for compiling national statistics. According to the UN, "it consists of an integrated set of macroeconomic accounts, balance sheets, and tables based on internationally agreed concepts, definitions, classifications and rules." The 2008 version is an update of the 1993, 1953 and 1968 versions of these rules.
There are two general approaches in national income accounting: the expenditure approach and theapproach. The expenditure approach adds up what has been bought during a period, and the approach adds up what has been earned during a period. For example, the car industry can be measured either as the price paid for all cars that or by the sum of the costs paid to produce those cars (labor, , materials, interest expenses, etc.). The approaches can different results, though theoretically they should equal.
National income accounting is a mathematical system. It does not interpret, analyze or judge, and thus it is only one step in the analytical process of measuring a country's economic activity. In turn, it is generally not a good way to measure the welfare of a population or a country's "happiness."
National income accounting is also not all-inclusive. It does not measure, for example, activity in themarkets. It does not include the labor value of household work (child care, cleaning, laundry, etc.), and it reports government services at cost rather than at , which is often much lower.
Why Does National Income Accounting Matter?
National income accounting is not a set of payroll statistics and other important economic measures.rules per se; rather it is a set of methods for collecting data. Its importance is not in process but in results: Through national income accounting, we have measures such as gross domestic product, figures, nonfarm
In turn, national income accounting is crucial to understanding whether a country is entering or exiting prosperous or challenging economic times. It also provides the quantitative information on which a government might base its fiscal and monetary policies. "You can't manage what you can't measure" might as well be its motto.
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.
Read This Next
Way back in the Summer of 2012, a person walked into a Maverik convenience store in Meridian, Idaho, and bought a Powerball lottery ticket. Powerball, as many know, is a simple $2 bet: Pick...Read More →
Forget what you've heard, debt-laden companies offer great turnaround potential if you know what to look for. For...Read More →