TOPIC 2

(cont. Part 2)
NATIONAL INCOME
ACCOUNTING
 Methods of Measuring
National Income
Income approach

3 Methods Product / Output approach

Expenditure approach

NIK AZMA WAIL

1. Income Approach
➢ NI is measured by adding all the types of income paid to
factors of production

➢The major components of income:

1. Wages & salaries

✓ income from employment
✓ income from self employment (proprietor’s
income
2. Interest & dividend
3. Rent
4. Profit
✓ distributed
✓ undistributed profit
✓ tax on companies profit (corporate tax)
Formula

1. GDPfc = wages+salaries+rent+interest & dividend +profit

2. GNPfc = GDPfc + Net factor income abroad
3. National income (NI) = GNPfc – depreciation

4. Personal income (PI) = NI + transfer payments

– corporate income taxes –retained earning
– social security distribution – insurance premium
- undistributed profit-EPF
5. Disposable personal income (DPI) = PI – personal
income tax
 Items RM Million
Income from employment 13 000
Income from self employment 12 000
Income from rent, dividend and interest 10 000
Companies Profit 23 000
Net factor income abroad 7000
Depreciation /Capital Consumption 1 000
Transfer Payment 1 000
Social Security Contribution (SOCSO) 200
Corporate Tax 800
Undistributed profit 5 000
Personal Income Tax 500

Calculate:
a) GDPfc
b) GNPfc
c) National Income
d) Personal Income
e) Disposable Income 5
Calculate:
a) GDPfc = 13000+12000+10000+23000+800+5000
= 63800

a) GNPfc = GDPfc + Net factor income abroad

= 63800 + 7000
= 70800

a) National Income = GNPfc – depreciation

= 70800 – 1000
= 69800

a) Personal Income = 69800 +1000 -200 -800-5000

= 64800

a) Disposable Income = 64800 – 500

= 68300 6
2. Product/Output Approach

➢NI is measured by adding up all final goods and services

produced by all economic sectors.

➢3 economic sectors contributing to the GDP:

1. Primary sector
✓ mining and quarrying, agriculture, forestry, fishing.
2. Secondary sector
✓ manufacturing and construction
3. Tertiary sector
✓ electricity, gas and water; wholesale and retail trade;
finance, insurance, real estate and business services,
transport, storage and other services, education,travel
Formula
1. GDPmp = Primary sector + Secondary sector +Tertiary
sector
2. GNPmp = GDPmp + net factor income abroad
3. GNPfc = GNPmp – indirect taxes + subsidies
4. National income (NI) = GNPfc – depreciation

5. Personal income (PI) = NI + transfer payments

– corporate income taxes –retained earning
– social security distribution – insurance premium
- undistributed profit-EPF
6. Disposable personal income (DPI) = PI – personal
income tax
 Example:
Items RM (million)
Government services 1000
Net factor income abroad 250
Transfer payments 150
Exports 1500 Calculate:
Mining and quarrying 1800 1. GDPmp
Manufacturing 1500 2. GNPmp
Indirect business tax 400
3. GNPfc
Depreciation 100
4. National
Subsidies 150
income
Private investment 5000
Electricity, gas and water 700
5. PI
Banking and tourism 3000 6. DPI
SOCSO and EPF 1000
Income taxes 300
Solution:
1.GDPmp = government services + mining and quarrying +
manufacturing + electricity, gas and water banking and tourism
= 1000 + 1800 + 1500 + 700 + 3000 = RM8000m

2.GNPmp = GDPmp + net factor income abroad

= 8000 + 250
=8250

3.GNPfc = GNPmp + subsidies – indirect taxes

= 8250 + 150 - 400 = RM8000m

4.NI = GNPfc –Depreciation

= 8000 – 100 = RM7900

PI?
DPI?
3. Expenditure Approach
✓ NI is obtained by adding all the expenditure on goods and
services by four economic sector in a year:
✓ Component of expenditure:
1. Household Consumption (C)
❑ Private consumption , personal consumption, Public
consumption, Consumer expenditure
2. Investment by Firm (I)
❑ Public investment, Private investment, change in
stock, Change in inventory
3. Government spending (G)
❑ Government expenditure, Government expenses
4. Net export (X – M)
❑ Export and import
 Formula

1. GDPmp = C + I+ G + (X-M)
2. GNPmp = GDPmp + net factor income abroad
3. GNPfc = GNPmp – indirect taxes + subsidies
4. National income (NI) = GNPfc – depreciation
5. Personal income (PI) = NI + transfer payments
– corporate income taxes – retained earning
– social security distribution (SOCSO) – insurance premium
– undistributed profit- EPF
6. Disposable personal income (DPI) = PI – personal income
tax
Example 1
COMPONENTS RM MILLION
1. Public Consumption 20 000 Calculate:
2. Private Consumption 30 500
3. Public Investment 10 600
a)GDPmp
4. Private Investment 15 000
5. Change in Stock 150 b)GNPmp
6. Goods and services exported 1 000 c)GNPfc
7. Goods and services imported 700 d)NI
8. Net factor income abroad 100
9. Indirect taxes 200
e)PI
10. Subsidies 500 f)DPI
11. Depreciation 50
12. Employees Provident Fund (EPF) 200
13.Tax on personal income 400
14. Transfer payment 100
15. Social Security Contribution (socso) 100
16. Retained earnings 10
17. Insurance Premium Payment 100
Calculate:

GDPmp = C + I + G + (X-M)
= 20,000 + 30,500 + 10,600 +15,000 + 150 + (1,000-700)
= 76,550

GNPmp = GDPmp + net factor income abroad

= 76,550 + 100
= 76,650

GNPfc = GNPmp + subsidy – indirect taxes

= 76,650 + 500 – 200
= 76,950

NI = GNPfc – depreciation
= 76,950 – 50 = 76900

PI = NI + transfer payment – SOCSO – retained earnings –Insurance

premium-EPF
= 76,900 + 100 – 200 – 100 – 100 – 10 = 76,590

DPI = PI – Personal income tax

= 76,950 – 400 = 76190
Example 2:
Items (RM millions)
Exports 500
Personal consumption expenditure 1400
Changes in stock -40
Indirect tax 30
Government expenditure 990
investment 1000
Personal income tax 80
Subsidies 30
Imports 400
Factors income paid abroad 80
depreciation 40
Factor income receive from abroad 90

Calculate:
1.GDPmp (3450)
2.GNPmp (3460)
3.GNPfc (3460)
4.National Income (3420)
Similar terms

1. Indirect tax= tax on expenditure = tax on consumption = indirect

business tax
2. Corporate tax = corporate business tax =corporate income tax = tax
on companies profit = business tax
3. Retained earnings= undistributed profit
4. Profit =corporate profit=business profit=companies profit
5. Income from self employment=proprietor’s income
6. Personal income tax=income tax
7. Depreciation = capital consumption= Consumption on Fixed Capital
Similar terms

8. Consumption (C) = Private Expenditure=household consumption

9. Government spending=government expenditure
10. Investment (I) = Change In Stock / Private Investment / Public
Investment=change in inventory
11. SOCSO = Social Security Contribution
12. EPF=employees provident fund
THANK YOU

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