National Income 2

National Income 2

National income is the money value of expenditures on all goods and services which generate incomes within the country. This figure is not obtained by simply adding together expenditures on all goods and services. There are three reasons. First, some expenditures by businesses are on raw materials and components the cost of which will be reflected in the prices of the final goods or services sold. For example, paper used in a may be bought and paid for by the printer, who passes on the cost to the publisher in his charge for printing, which is passed on by the publisher to the reader in the price for the . To count the cost of the paper and the printing as well as the cost of the which includes them would be double counting. Expenditure on 'intermediate' goods and services must therefore be excluded and only expenditures on final products or services counted. There are exceptions to this rule: the Government buys some goods and services to provide services to the public, e.g. legal and military, without direct charge. These expenditures must be included because there is no final sale price to register the costs. Again, expenditure on new capital assets, such as houses, factory buildings, machines, or on stocks and work in progress, must be counted, for they would not be reflected in the current cost of production or in the prices of their final products (and are therefore not 'intermediate' expenditure).

Secondly, not all expenditures by residents create incomes at home. Some will be on goods and services from abroad and will create income overseas. Conversely, non-residents will make purchases in Britain which generate incomes here. Imports must therefore be deducted and exports added to the domestic expenditure figures.

Thirdly, some expenditure on goods and services is taxed or subsidized. Taxes must be subtracted and subsidies added since they have not produced new income and have been counted once.

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