Applied Economics

Governor Pack Road, Baguio City, Philippines 2600

Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: ABM 11
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 9- Economics Subject Teacher:

NATIONAL INCOME ACCOUNTING

Learning Objectives:
At the end of the module, the students should be able to:
a. explain the concepts of national income accounting;
b. identify factors that affect growth of the economy;
c. explain the concepts of Gross National Product;
d. explain the concepts of Gross Domestic Product; and
e. solve GNP and GDP problems.

NATIONAL INCOME ACCOUNTING

It is a system of statistics and accounts that keeps track of production, consumption, saving, and
investment to track over-all economic performance as illustrated by figure 1.
Figure 1:

Key Terms:
1. National Income Accounting – refers to the measurement of aggregate economic activity,
particularly national income and its components.
2. Aggregate – means total or gross amount of all components
3. Gross National Product – The market value of all final goods and services produced by the
resources of the economy (within or outside) during a specified period of time.
4. Gross Domestic Product – The market value of all final goods and services produced within a
country in a given period of time.
5. Final market value – is the monetary amount by which a product would have been sold in the
market.
6. Final goods and services – refer to goods and services produced within the year for final use of
consumers.

Contemporary/major issues being resolve by many economies

1. Inflation – a sustained increase in the price of most, if not all, of the goods and services offered
in the market.

 Origins of Inflation:
a) External – originate from a change in the financial transactions of a nation.
b) Internal – originate from a change in the aggregate demand structure of an economy,
a change in the desire for profits of enterprise owners, and increase in the costs of
production of a firm.

 Types of Inflation:
a) Demand-pull inflation – occurs when consumers suddenly or seasonally demand some
products, thereby allowing suppliers to increase prices to maximize their profits.
b) Cost-push inflation – occurs due to increasing cost of production on the part of the
producers or sellers.
Applied Economics Page 1 of 5
 Applied Economics
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: ABM 11
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 9- Economics Subject Teacher:

 Wage-push inflation
 Commodity-push inflation
 Profit-push inflation

2. Deflation – a decrease in the general price level, or a rise in the purchasing power of money
with respect to a large class of goods or services.

 Causes of Deflation
a) Reduction in the velocity of money
b) Reduction in the amount of money supply per person
c) Capitalism

Measuring Gross Domestic Product:

 The Expenditures Approach
• C + I + G + (Xn) = GDP

 The Flow of Income Approach

• Households supply business with the factors of production in return for payment in the
form of wages, profits, rent, and interest

 The Value Added Approach

• Adds the increase in value at each stage of the production and distribution process

Figure 2: Shows how GDP is measured.

Most people have the same question in mind, that question is how much of their income is really the
disposable portion. In the figure below, the simple illustration will guide an individual how to compute
the disposable income.
Figure 3: Computation of disposable income
GDP (Gross Domestic Product)
- Depreciation
Net Domestic Product
- Indirect business taxes and subsidies
Domestic Income (DI) = National Income = (W + R + I + P)
- Earnings not received
+ Receipts not earned
Personal Income (PI)
- Personal Taxes
Disposable Personal Income (DPI)
Applied Economics Page 2 of 5
 Applied Economics
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: ABM 11
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 9- Economics Subject Teacher:

Note the following important information:

• Cash basis of accounting is being used to measure the economic performance including
taxation laws in the Philippines.
• To know the estimated disposable income of an individual, the DPI is divided by the total
population to arrive at the per capita income.
• Indirect Business Taxes are primarily sales taxes and excise taxes; subsidies include payments
such as those made to farmers.
• Earnings not received include social security taxes and corporate profits not paid out as
dividends.
• Receipts not earned include Social Security Benefits plus other government transfer payments.

Per Capita GDP

a) Per Capita GDP calculations attempt to give us additional information about how we are
doing as an economy.

b) Per Capita GDP calculations may be a better measure of the standard of living.
• For citizens living in the same country over time
• For comparing standards of living between citizens of different countries

The Philippines registered ₱15,806 Billion (Source: www.worldeconomics.com) in 2017. If this amount is
divided by the Philippine population of 100,980,000 (Source: 2015 PSA Census data), you will arrive at
₱156,526 per capital GDP which is computed as follows:
₱15,806,000,000,000
Per capita GDP 2018 = = ₱156,526
100,980,000

Critical thinking:

Shortcomings of GDP as a Measure of National Economic Well-Being:

• There are productions that are excluded, such as:
✓ Household production
✓ Illegal production
✓ The underground economy
• Treatment of leisure time
• Human cost and benefits
• GDP gives us a ballpark idea of how much we produce, not necessarily how well off we are.

Measuring Gross Domestic Product

A. The Final Expenditures Approach:
Formula: GNP = C + G + I + (X-M)
Where: C = Private Consumption Expenditures
G = Government Expenditures
I = Gross Domestic Investment
X – M = Net Foreign Investment

Consumption is the use of a final good to satisfy household’s wants. It accounts for the final
expenditure of the household sector during the period.

Applied Economics Page 3 of 5

 Applied Economics
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: ABM 11
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 9- Economics Subject Teacher:

Investment or capital formation is expenditure on capital accumulation. Firm’s expenditure for man-
made goods used to produce other goods.
Government spending/expenditure – refers to the government’s expenses on producing or providing
public goods and services such as social welfare and health services, public highways and
infrastructures, and education.

Net exports – computed as Export - Import

B. The Income Approach:

Gross National Product (Income approach) – national income that includes the value of
depreciation in the economy
Formula: GNP = NI + Indirect Taxes + Depreciation

National income at factor costs, is the sum of all factor payments received by the owners of
productive services, hence NI = Wages and Salaries + Rental Income + Interest Income + Profits.

Factor costs refer to the current prices of the factors of production (or resources) that were discussed
in Module 2.

Indirect Business Taxes refers to government revenue from the sales of products produced by the
country. Examples are Sales taxes, e-vat, and excise tax (specific and ad valorem).

Depreciation
• the value of the wear and tear of capital goods
• Is measured as a ratio of the value of the good and its lifespan
• Considered as income since the value of depreciation is translated to the value of the
products that the capital has produced over a year and has been sold.

The comparison of GDP and GNP is summarized in table no. 1 below.

Table no. 1: GDP VS GNP
GDP GNP
refers to the measure of output produced within incomes earned by the country’s nationals plus
the country’s jurisdiction net factor income from abroad
net factor income from abroad is the difference
of earnings of local factors and the earnings of
foreign factors of production

GDP = GNP– net factor income from abroad GNP = GDP + Net Factor Incomes from Abroad

provides a better indicator of output than GNI; it provides a better measure of total income
it’s a better gauge to understand if the country’s than GDP; it measures the incomes repatriated
domestic economy is performing well by foreign contract workers to their families

Situational analysis:
With the current economic situation, production and consumption are hindered by the lockdown
caused by a pandemic COVID-19. All economies are affected and might result to a very low or even
negative GDP. What can everyone contribute so that the economy will bounce back to at least go
to a new normal condition if not the original normal condition? Based on the topics discussed in this
module, the following activities must arise:

1. Government
a. increase spending thru implementation of flagship projects to boost the economy.
b. Reduce the interest rates so that many will be entice to borrow money from financial
institutions and use the money to purchase goods or services.

Applied Economics Page 4 of 5

 Applied Economics
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: ABM 11
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 9- Economics Subject Teacher:

c. Do not print more money than what is needed in the economy because this will dilute
the purchasing power of the local currency or worst lose its value.
d. Provide tax incentives to manufacturing industries to increase production of goods and
services
e. Tighten the policy on importation of non-essential goods in order for the income to
circulate more inside the Philippines. This is known as decreasing the leakage or outflow
of money circulating in the economy.
2. Producers/firms – engage more in production of essential goods using more of the internal
resources of the country.
3. Consumers/household –
a. Reduce/lessen the savings but spend more to increase injections/inflows of money in
the economy.
b. Spend more on basic and essential goods and services.
c. Purchase locally produce products and avoid buying imported goods.

- - - - - - End of Discussion - - - - - -

References:
1. BAL 330 B6301 2017. Boado, Sherry Amour. Applied Economics. Diwa Learning Systems Inc.
2. BAL 330 T6355 2017. Nestor Torrefranca, Uriel J. Ancheta . Applied Economics. Fastbooks
Educational Supply, Inc.
3. Azarcon, et al. (2008). Principles of Economics. Baguio City: Valencia Book team.
4. Caoile, P. V. (2017). Applied Economics. Quezon City: Phoenix Publishing House, Inc.
5. https://www.worldeconomics.com/GrossDomesticProduct/Philippines.gdp, Retrieved: May
3, 2020
6. https://psa.gov.ph/content/highlights-philippine-population-2015-census-population,
Retrieved: May 3, 2020

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