CHAPTER 3

National Income Accounting

National Income Accounting is a government accounting system used to measure economic activity of a
nation. It provides the framework of the economy’s performance and the economy’s stage of economic
development.
Gross National Product (GNP) is the market value of all final goods and services produced by the
people of one country in one year.

 Final goods – goods which are for final consumption by the end user.
 Intermediate goods – goods which to be processed, further into other goods.

Only final goods and services are counted as part of GNP.

GNP may increase if there is an increase in:

a. The price
b. The quantities
c. Both price and quantity

𝑴𝒐𝒏𝒆𝒚 𝑮𝑵𝑷
𝑹𝑬𝑨𝑳 𝑮𝑵𝑷 =
𝑪𝑷𝑰

Where: CPI – Consumer Price Index

Consumer Price Index (CPI) is a tool used to measure the changes in the prices of the commodities.

𝑷𝒏
𝑪𝑷𝑰 =
𝑷𝒐
Where: 𝑃𝑛 = price in a given year

𝑃𝑜 = price in a base year

Items that are not included in GNP:

1. Quality of goods and services produced

2. Leisure time
3. House wives’ services
4. Resale
5. Transfer payments
6. Security
 METHODS USED
TO MEASURE
GNP

Expenditure Method Income Method or Industrial Origin Value Added Method

or Flow of Product Earnings and Cost Method
Method Approach

 Measures all the  This method  Measures the  This method

money spent on accounts for all value of the measures the
goods and the money goods and value of the
services received for the services produced goods and
 Personal production of by industries. services
consumption goods and  Industry produced based
expenditure (C) services on the value
 Gross private Add:
domestic
 Add: added at each
1. Agriculture, stage of
investment (lg) Rents
Fishery and production.
 Government Wages and
Forestry
purchases of Salaries 2. Industrial Sector
 Value added is
goods and Interests (a) Mining and the difference
services (G) Proprietors’ Quarrying between the cost
 Net exports (of income (b)Manufacturing of materials/
goods and Corporate (c) Electricity, gas and goods and the
services (Xn) income water value of sales of
Indirect business 3. Service Sector goods.
taxes (a) Transport,
Depreciation Communication
(b) Commerce
Equals: GNP (c) Services

Equals: GDP

NET NATIONAL PRODUCT (NNP)

Net national product is gross national product less capital consumption

allowances or the depreciation
NATIONAL INCOME (NI)
National Income is the payments of income to the factors of production or the resource
of suppliers

PERSONAL INCOME (PI) – refers to payment of income to individual.

PI = NI – (SSS contribution + corporate income taxes +undistributed corporate profits) +

transfer payments
PERSONAL DISPOSABLE INCOME (DI) – refers to the income left after deducting personal income
taxes.

DI = PI – personal income taxes

PERSONAL SAVINGS (S) – income not spent for consumption….

S = DI – C
..Or there is interest paid by consumers.

S = DI – (C + interest paid by consumers)

MEASURING ECONOMIC SUCCESS

 GNP shows us the economy’s performance.
 When GNP increases, the economy is expanding.
 When GNP decreases, the economy is contracting.
 It is also used to compare country’s economy with the economy of another.
 It is also used to compare country’s economy with itself over time.