National Income Accounts

Mrs. Sarah Alviar-Eisma

Economics Teacher

National Income Accounts

Refer to a set of accounts that
measures the spending, income, and
output of the entire nation for a year.
- It also measures:
(1) level of annual economic activity in
a country;
(2) change in level of economic activity
i.e.,
economic growth =
-

(current national income previous income)

/ previous income * 100

National Income Accounts

-

It also measures:
(3) where the economy is in the
business cycle and the size of
output gap;
(4) distribution of national income
between different social groupings
and regions, i.e. income inequality;
(5) compare standards of living
between countries.

Gross National Product (GNP)

-

Measures the total market value of

all final goods and services
produced by permanent residents of
a nation within a given period of
time.
For easier definition for the
Filipinos:
-

GNP (Gawa Ng Pinoy) everywhere in

the world as long as you are a Filipino
citizen.

Components of GNP

FINAL GOODS

Goods that are produced for final use and not

for resale or further manufacture.
Ex. Pineapple fruit you bought from the market
and to be served directly on the dining table.

INTERMEDIATE GOODS

Goods that have undergone some

manufacturing or processing but have not yet
reached the stage of becoming final products.
Ex. Pineapples to use to make a good
pineapple jam.

Components of GNP

NET FACTOR INCOME FROM ABROAD

(NFIA)

Dollar income of our OFWs and other Filipinos

who have businesses in other countries.
Ex. Filipino Domestic Helper in Hong Kong
Jollibee Los Angeles

YEAR OF PRODUCTION

The year when the product was manufactured.

Ex. A car that was made in 2004 but bought in
2006 will be included in the GNP of 2004 and
not in 2006.

3 Approaches in Computing GNP:

EXPENDITURE APPROACH

Measures GNP by adding personal

consumption expenditure, gross private
domestic investment plus stock
building, government purchases of
goods and services, net exports and
net factor income from abroad.

PERSONAL CONSUMPTION EXPENDITURE

(C)

Expenditure by households on goods and

services produced in the country.

Expenditure Approach

Gross Private Domestic Investment

plus stock building ( I )

Expenditure by firms on capital, equipment

and buildings and change in firms stocks.
Household spending on new residential
houses.

Government Purchases of Goods and

Services ( G )

Central and local government purchases of

goods and services. Transfer payments
such as child benefits are excluded.

Expenditure Approach

Net Exports ( NX )

Exports (X) less imports (M)

Net Factor Income from Abroad

(NFIA)

Income of OFWs less income of TNCs

(Trans-National Corporations)

THEREFORE:
GNP = C + I + G + NX + NFIA

2. Income Approach
-

Measures GNP by adding together money

earned by the factors of production in
creating the years output such as:
-

Operating Surplus: Net business income

before corporation tax is paid and after
payment has been made for inputs and to
workers.
Mixed Income: refers to combining of wages,
salaries, and profits of the self-employed
Compensation of Employees: refers to wages
and salaries including tax and pension
contributions and any other fringe benefits

Income Method Problems:

Transfer Payments:

Such as social security payments are

ignored because they are income received
for which there is no corresponding output.

Non-marketed items

Significant economic activity is not bought

and sold within a market is so excluded
from NIA. For instance, a caregiver looking
after an elderly relative without payment is
generating a service for which there is no
payment(expenditure) or wage (income)

3. Output/ Value-Added Approach

- Measures GNP by adding up the
final value of all goods and services
produced this year by firms. The
money spent on making goods
(inputs) is taken away from the
money received from the sale of
goods (outputs) to give each
sectors value added. Taking final
output or adding up each sectors
value gives national income.

Gross Domestic Product (GDP)

-

Measures the market value of all

final goods and services produced
within the countrys border in a
given period of time.
For easier definition for the
Filipinos:
-

GDP (Gawa Dito sa Pilipinas

everywhere in the Philippines as long
as it is manufactured inside the
territory of the Philippines.)

Using the Expenditure Approach

GDP = C + I + G + NX

In the Philippines, the GDP is usually

higher than the GNP because foreign
corporations in the country earn more
than the OFWs and Filipino companies
abroad.
But since the 1990s, our GNP has
become greater than the GDP. This
phenomenon is a result of the big
contribution of the migrant workers to
our economy.

Exercise

The following table shows the National Income figures for

2006. Compute for GDP(3pts.) and GNP(3pts.). Show your
solutions:
2006 National Income figures at current prices (in
million pesos)
Personal consumption
expenditures

4226

Government purchases of
goods and services

587

Capital formation

884

Exports

2797

imports

2873

Income of OFWs

613

Income of TNCs

76

Answer Key
1.

GDP = C + I + G + NX
= 4226 + 864 + (2797
2873)
= 5601

2. GNP = GDP + NFIA

= 5601 + (613 76)
= 6138