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National Economy
14 May 2020

An economy (from Greek οίκος – "household" and νέμoμαι – "manage") is an area of the production, distribution and trade, as well as consumption of goods and services by different agents. Understood in its broadest sense, 'The economy is defined as a social domain that emphasize the practices, discourses, and material expressions associated with the production, use, and management of resources'.[1] Economic agents can be individuals, businesses, organizations, or governments. Economic transactions occur when two groups or parties agree to the value or price of the transacted good or service, commonly expressed in a certain currency. However, monetary transactions only account for a small part of the economic domain. Economic activity is spurred by production which uses natural resources, labor and capital. It has changed over time due to technology (automation, accelerator of process, reduction of cost functions), innovation (new products, services, processes, expanding markets, diversification of markets, niche markets, increases revenue functions) such as, that which produces intellectual property and changes in industrial relations (most notably child labor being replaced in some parts of the world with universal access to education). A given economy is the result of a set of processes that involves its culture, values, education, technological evolution, history, social organization, political structure and legal systems, as well as its geography, natural resource endowment, and ecology, as main factors. These factors give context, content, and set the conditions and parameters in which an economy functions. In other words, the economic domain is a social domain of human practices and transactions. It does not stand alone.

A market-based economy is one where goods and services are produced and exchanged according to demand and supply between participants (economic agents) by barter or a medium of exchange with a credit or debit value accepted within the network, such as a unit of currency. A command-based economy is one where political agents directly control what is produced and how it is sold and distributed. A green economy is low-carbon, resource efficient and socially inclusive. In a green economy, growth in income and employment is driven by public and private investments that reduce carbon emissions and pollution, enhance energy and resource efficiency, and prevent the loss of biodiversity and ecosystem services.[2] A gig economy is one in which short-term jobs are assigned or chosen via online platforms.[3] New economy is a term referred to the whole emerging ecosystem where new standards and practices were introduced, usually as a result of technological.

Gross Domestic Product

Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced in a specific time period, often annually.[2][3] GDP (nominal) per capita does not, however, reflect differences in the cost of living and the inflation rates of the countries; therefore using a basis of GDP per capita at purchasing power parity (PPP) is arguably more useful when comparing living standards between nations, while Nominal GDP is more useful comparing national economies on the international market.[4]

The OECD defines GDP as "an aggregate measure of production equal to the sum of the gross values added of all resident and institutional units engaged in production and services (plus any taxes, and minus any subsidies, on products not included in the value of their outputs)."[5] An IMF publication states that, "GDP measures the monetary value of final goods and services—that are bought by the final user—produced in a country in a given period of time (say a quarter or a year)."[6]

Total GDP can also be broken down into the contribution of each industry or sector of the economy.[7] The ratio of GDP to the total population of the region is the per capita GDP and the same is called Mean Standard of Living. GDP is considered the "world's most powerful statistical indicator of national development and progress".

Net domestic product

The net domestic product (NDP) equals the gross domestic product (GDP) minus depreciation on a country's capital goods.[1][2]

G D P − D = N D P {\displaystyle GDP-D=NDP} {\displaystyle GDP-D=NDP}

Net domestic product accounts for capital that has been consumed over the year in the form of housing, vehicle, or machinery deterioration. The depreciation accounted for is often referred to as "capital consumption allowance" and represents the amount of capital that would be needed to replace those depreciated assets.[3] The portion of investment spending that is used to replace worn out and obsolete equipment — depreciation — while essential for maintaining the level of output, does not increase the economy’s capacities in any way. If GDP were to grow simply as a result of the fact that more money was being spent to maintain the capital stock because of increased depreciation, it would not mean that anyone had been made better off.[4] Because of this some economists view NDP as a better measure of social and economic well being than GDP.[4][5]

If the country is not able to replace the capital stock lost through depreciation, then GDP will fall. In addition, a growing gap between GDP and NDP indicates increasing obsolescence of capital goods, while a narrowing gap means that the condition of capital stock in the country is improving. It reduces the value of capital that is why it is separated from GDP to get NDP.

Gross National Income

The gross national income (GNI), previously known as gross national product (GNP), is the total domestic and foreign output claimed by residents of a country, consisting of gross domestic product (GDP), plus factor incomes earned by foreign residents, minus income earned in the domestic economy by nonresidents (Todaro & Smith, 2011: 44).[1] Comparing GNI to GDP shows the degree to which a nation's GDP represents domestic or international activity. GNI has gradually replaced GNP in international statistics.[2][3] While being conceptually identical, it is calculated differently.[4] GNI is the basis of calculation of the largest part of contributions to the budget of the European Union.[5] In February 2017, Ireland's GDP became so distorted from the base erosion and profit shifting ("BEPS") tax planning tools of U.S. multinationals, that the Central Bank of Ireland replaced Irish GDP with a new metric, Irish Modified GNI*. In 2017, Irish GDP was 162% of Irish Modified GNI*

Net National Income

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.

It can be expressed as

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


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:

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