National income (17TH-20TH CENTURY)

National income is the total income, over a specified period of time, of all the inhabitants of an economy after allowing for capital consumption.

The term can also be used to describe a monetary flow that shows net additions to wealth. National accounting was first conducted by English economist Sir William Petty (1623-1687), and techniques were further developed during the 1930s.

Most measures of national income exclude non-market activities and certain social costs.

Also see: theory of income determination, theory of income distribution, natural and warranted rates of growth, Wagner’s law, balanced budget multiplier

Source:
W Beckerman, An Introduction to National Income Analysis (London, 1966)

In national income accounting, net national income (NNI) is net national product (NNP) minus indirect taxes.[1] Net national income encompasses the income of households, businesses, and the government. Net national income is defined as gross domestic product plus net receipts of wages, salaries and property income from abroad, minus the depreciation of fixed capital assets (dwellings, buildings, machinery, transport equipment and physical infrastructure) through wear and tear and obsolescence.[2]

It can be expressed as

NNI = C + I + G + (NX) + net foreign factor income – indirect taxes – manufactured capital depreciation[3]

where:

  • C = Consumption
  • I = Investment
  • G = Government spending
  • NX = net exports (exports minus imports) = (X – M)

This formula uses the expenditure method of national income accounting.

When net national income is adjusted for natural resource depletion, it is called Adjusted Net National Income, expressed as

NNI* = C + I + G + NX + Net Foreign Factor Income – Indirect Taxes – manufactured capital depreciation – Natural Resource Depletion

Natural resources are non-critical natural capital such as minerals. NNI* does not take critical natural capital into account. Examples are air, water, land, etc.

For reference, capital (K) is divided into four categories:

  • {\displaystyle K_{m}} : manufactured capital (machines, factories, etc.)
  • {\displaystyle K_{h}} : human capital (workers’ skills)
  • {\displaystyle K_{n}} : non-critical natural capital (minerals)
  • {\displaystyle K_{h}*} : critical natural capital (air, water)

One thought on “National income (17TH-20TH CENTURY)

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