Product of Expenditure Approach (Demand Approach)

Household consumption expenditure (C) – the total payment made by households on

consumption of goods and services
+ Government purchases of goods and services (G) – government purchases of finished
products business and all direct purchases of
resources – (government expenditure)
+ Gross domestic investment of business firms (I) – purchase of new plants, equipment,
building new homes, and additions to
inventories – (investment expenditure)
Note: In the national income accounts, buying a stock, or an antique car, or
precious gems, or a piece of art is not investment.
+ Net Exports (NX) [ if the value of imports is greater than exports, it is minus ] – the
expenditure by the rest of the world on goods
and services produced by domestic firms
(exports) minus the US expenditures on goods
and services produced by the rest of the world
(imports)

The National Income Accounting Identity

𝒀 = 𝑪 + 𝑰 + 𝑮 + 𝑵𝑿
Y – GDP (the total output or income of the economy)

Example:
Personal Consumption – 3,657 (C)
Depreciation – 400
Wages – 3,254
Indirect Business Taxes – 500
Interest – 530
Domestic Investment – 741 (I) 𝑌 = 3,657 + 741 + 1,098 + (673 − 704)
Government Expenditure – 1,098 (G) = 3,657 + 741 + 1,098 − 31
Rental Income – 17 𝑌 = 5,465
Corporate Profits – 341
Exports – 673
Net Foreign Factor Income – 20
Proprietor’s Income – 403
Imports – 704
 Calculating GDP with Income Approach

𝑮𝑫𝑷 = (𝑷𝟏 × 𝑸𝟏 ) + (𝑷𝟐 × 𝑸𝟐 )

𝒇𝒊𝒏𝒂𝒍 − 𝒊𝒏𝒊𝒕𝒊𝒂𝒍
% 𝒄𝒉𝒂𝒏𝒈𝒆 = × 𝟏𝟎𝟎
𝒊𝒏𝒊𝒕𝒊𝒂𝒍

Income Approach
Note! In calculating GDP
 Labor paid – wage
 Land – rent
 Capital – interest
 Entrepreneur – profit
a) Proprietor’s income – a type of entrepreneur starts up his own
business and earn
b) Corporate profit – an entrepreneur’s profit or earning from investing
in someone else’s business
Depreciation
- the value of the capital that is used up by producing the output of the economy.

𝒄𝒐𝒔𝒕 − 𝒋𝒖𝒏𝒌 𝒗𝒂𝒍𝒖𝒆 𝟏𝟓, 𝟎𝟎𝟎 − 𝟒𝟎𝟎

𝑫𝒆𝒑𝒓𝒆𝒄𝒊𝒂𝒕𝒊𝒐𝒏 = = = 𝟐, 𝟒𝟑𝟑. 𝟑𝟑
𝒖𝒔𝒆𝒇𝒖𝒍 𝒍𝒊𝒇𝒆 𝟔

𝑴𝒐𝒏𝒆𝒚 𝑮𝑵𝑷
𝑹𝒆𝒂𝒍 𝑮𝑵𝑷 = × 𝟏𝟎𝟎
𝑷𝒓𝒊𝒄𝒆 𝑰𝒏𝒅𝒆𝒙
𝒀 = 𝑪+𝑰+𝑮+𝑿−𝑴

(𝑿 − 𝑴) the net increase in demand

Per Capita Income (PCI) – income per head

Keynesian Model (John Meynard Keynes)
𝑵𝒂𝒕𝒊𝒐𝒏𝒂𝒍 𝑰𝒏𝒄𝒐𝒎𝒆 = 𝑪𝒐𝒏𝒔𝒖𝒎𝒑𝒕𝒊𝒐𝒏 + 𝑰𝒏𝒗𝒆𝒔𝒕𝒎𝒆𝒏𝒕 + 𝑮𝒐𝒗′ 𝒕𝑬𝒙 + (𝑬𝒙𝒑𝒐𝒓𝒕 − 𝑰𝒎𝒑𝒐𝒓𝒕)
Product or Expenditure Approach (Demand Approach)
Household consumption – 10,143,431.01
+ Government expenditure – 8,801,214.10
+ Gross domestic investment – 3,391,403.00
+ Net exports – 7,585,515.15
− 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑐𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛 𝑎𝑙𝑙𝑜𝑤𝑎𝑛𝑐𝑒𝑠 (𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛) − 818,131.98
− 𝐼𝑛𝑑𝑖𝑟𝑒𝑐𝑡 𝑏𝑢𝑠𝑖𝑛𝑒𝑠𝑠 𝑡𝑎𝑥𝑒𝑠 − 616,717.76

Income Approach
Wages – 9,718,817.10
Rents – 6,178,818.17
Interests – 11,763,143.17
Profits – 15,063,714.81
Indirect taxes less subsidies – 13,715,615.00
+ Depreciation (Machine worth – 50,00.00 and its junk value is 1,500.00 and life use is 5
50,000−1,500
years) [ 5
]
= GNP

Industrial Origin Approach (Value Added Approach)

Agriculture – 150,145,601.00
Fish – 114,101,218.01
Forestry – 99,815,657.90
Industry – 753,140,625.98
a) Mining – 211,414,513.00
b) Manufacturing – 114,211,315.09
c) Construction – 111,515,789.71
d) Electricity, gas and water – 315,999,008.18
Service Sector – 308,374,998.78
a) Transportation – 88,141,007.01
b) Trade – 71,418,918.56
c) Finance – 60,814,071.18
d) Service – 88,001,002.03
= GDP – 1,425,578,101.67
+ Factor income – 69,414,008.16
= GNP
– Net indirect taxes – 101,717,841.61
– Depreciation – 9,700.00
= National Income