Measuring National Income

A.
National income is the total income of a nation. It can be interpreted as Output, Expenditure or Income. For example, if a manufacturer produce an item (output), it is sold to a buyer who expenses (expenditure) for it and pays the producer a revenue (income). So, measurement can be done on any of these three parameters, and they should be the same.

Measuring National Income

• Circular flow of income 
• Methods of measurement - income, expenditure and output 
• Distinction between 
• - gross and net 
• - national and domestic 
• - nominal and real 
• - total and per capita 

GDP: Gross Domestic product is the total amount of goods and services produced by means of production which are domestically located in one years time. GNP: Gross national product is the total amount of goods and services produced by means of production which are domestically owned in one years time.

Gross National Product (GNP) measures the economic output of a given nation. GNP can be used to measure the increase in real national income over a given period of time.

Criticisms of GNP

1. Real national income excludes price changes. A short period rise in national income during an upswing of an economic cycle does not constitute economic development.
2. GNP does not factor in a change in the population of a given nation.
3. GNP does not reveal or factor in the negative externalities such as pollution.
4. GNP tells nothing about the distribution of a societies income.
5. Does not factor in other forms of measurement such as illegal markets, services, etc.

Ref:
http://en.wikibooks.org/wiki/IB_Economics/Macroeconomics/Measuring_National_Income