National Output and

National Income
Macroeconomic Measurements
 National income and product accounts

• Data collected and published by

the government describing the
various components of national
income and output in the
economy. (Case and Fair)
 Gross domestic product (GDP)
• The total market value of all final
goods and services produced within
a given period by factors of
production located within a country.
(Case and Fair)
• The measurement of all output
produced within the country’s
domestic jurisdiction. (Sicat)
 Final goods and services vs.
Intermediate goods
Final goods and services
- goods and services for final use.
Intermediate goods
- goods that are produced by one
firm for use in further processing by
another firm.
(Case and Fair)
 Value added

• The difference between the value

of goods as they leave a stage of
production and the cost of goods
as they enter the stage. (Case and
Fair)
• In calculating GDP, value added at
each stage of production is summed
up or value of final sales can be
taken. Do not use the value of total
sales in an economy to measure how
much output has been produced.
(Case and Fair)
Exclusions of used goods and paper
transactions
• GDP ignores all transactions in
which money or goods change
hands but in which no new goods
and services are produced. (Case
and Fair)
Exclusion of output produced abroad by
domestically owned factors of production
• GDP is the value of output
produced by factors of
production located within a
country.
 Gross national product (GNP) /Gross
national income (GNI)
• The total market value of all final goods
and services produced within a given
period by factors of production owned by
the country’s citizens, regardless of
where the output is produced. (Case and
Fair)
• The incomes earned by the country’s
nationals, net of the incomes earned by
foreign nationals, currently termed as
Gross National Income (GNI). (Sicat)
 Calculating GDP
• Expenditure approach
- a method of computing GDP that
measures the amount spent on all
final goods during a given period.
Formula:
GDP = C + I + G + (X – M)
 Expenditure Categories
where:
• C = Personal consumption expenditure -
household spending on consumer goods
• I = Gross private domestic investment – spending
by firms and households on new capital: plant,
equipment, inventory, and new residential
structures
• G = Government consumption and gross
investment
• X – M = Net exports – net spending by the rest of
the world, or exports minus imports
 Calculating GDP
• Income approach
- a method of computing GDP that measures
the income – wages, rents, interest, and
profits – received by all factors of production
in producing final goods.
Formula:
GDP = national income + depreciation + (indirect
taxes – subsidies) + net factor payments to the
rest of the world + other
• National income
- the total income earned by the factors
of production owned by a country’s
citizens.
- sum of compensation of employees,
proprietors’ income, corporate profits,
net interest and rental income
• Depreciation
- the amount by which an asset’s value falls in a
given period.
• Indirect taxes
- taxes like sales taxes, customs duties and license
fees.
• Subsidies
- payments made by the government for which it
receives no goods or services in return.
• Net factor payments to the rest of the world
- payments of the factor income to the rest of
the world minus the receipt of factor income
from the rest of the world.
 GDP to Personal Disposable Income
GDP
Plus: receipts of factor income from the rest of the
world
Less: payments of factor income to the rest of the
world
Equals: GNP/GNI
Less: Depreciation
Equals: net national product (NNP)
Less: indirect taxes – subsidies + other
Equals: national income
National income
Less: corporate profits minus dividends
Less: social insurance payments
Plus: personal interest income received from
government and consumers
Plus transfer payments to persons
Equals: personal income
Less: personal taxes
Equals: disposable personal income
 Calculating GDP
• Industrial-origin approach
- the method of computing GDP that
measures the output produced in different
industries – agriculture, fishery and forestry,
industry, and services.
 Nominal vs. Real GDP
• Nominal GDP
- gross domestic product measured in current
prices.
• Real GDP
- nominal GDP adjusted for price changes.
(Case and Fair)
 Limitations of GDP concept
• GDP and Social welfare
- decrease in crime, increase in leisure time,
nonmarket and domestic activities, losses or
social ills are reflected in GDP
-production that pollutes the environment
(negative externalities)
(Case and Fair)
 Limitations of GDP concept
• GDP and the underground economy
Underground economy
- the part of the economy in which
transactions take place and in which income is
generated that is unreported and therefore
not counted in GDP.
(Case and Fair)
• Per capita GDP or GNI
- a country’s GDP or GNI divided by its
population.
• Economic growth rate
- measures how much the much an economy
has grown over a period of time.
= GDP2 – GDP1 X 100
GDP1