National Income Accounting in Economics: Definition, Uses & Equation

Lesson Transcript
Instructor: Brianna Whiting

Brianna has a masters of education in educational leadership, a DBA business management, and a BS in animal science.

National income accounting is a measure of economic activity to predict the current financial health of the country and to help predict future growth over a specific period of time. Learn the equation used in calculating measurements involving the gross domestic product and identifying strengths and weaknesses in multiple sectors of the economy. Updated: 10/14/2021

What Is National Income Accounting?

Meet Bridget! Bridget has decided to go back to school to earn a college degree. While going to college has always been important to her, she isn't sure which major to pursue. She has interests and hobbies that could advance into some sort of career, but she has yet to find what she's really passionate about. That was, until she saw a program on television that discussed the economy. It went into great depth about the health and well-being of the economy. After a few hours of watching the program, Bridget decided that she would pursue a degree in economics because she wanted to learn more about economic activity.

Specifically, she wanted to know more about national income accounting. National income accounting is a term that refers to measuring the health of an economy, the economic activity, and the forecasted growth and development during a particular time period. Activities such as domestic revenue, wages to foreign and domestic employees, sales, and income taxes are all included. In simple terms, it measures the aggregate (total) output as well as the aggregate income in an economy. Using national income accounting gives us a look at how the economy is performing and where money is being earned and spent.

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Measuring National Income Accounting

Perhaps the most common way to measure national income accounting is to use gross domestic product (GDP). Gross domestic product looks at the goods and services produced during a particular time within a particular economy. So economists can calculate the GDP for the purposes of national income accounting. The equation often used to calculate GDP is:

GDP = C + I + G + (X - M)

But what do the letters in this equation stand for?

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