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NATIONAL INCOME

ACCOUNTING
NATIONAL INCOME
ACCOUNTING
System used to measure the
aggregate income and
expenditures for a nation.
Provides valuable indictor of an
economy’s performance.
GROSS DOMESTIC
PRODUCT (GDP)
Total market or money value of
all final goods and services
produced in an economy over
a period of one year.
GROSS NATIONAL PRODUCT
(GNP)
Market value of all the final
products produced by the
resources of the economy during
a specified period of time.
Produced by nation’s residents,
no matter where they are
located.
APPROACHES IN MEASURING
GDP
The Expenditure Approach
The Income Approach
Industrial Origin Approach
1. EXPENDITURE APPROACH

It measures GDP by adding all


the spending for final goods and
services during a period of one
year.

 GDP = C + I + G + (X – M)
PERSONAL CONSUMPTION
EXPENDITURES (C)
Consumption is spending
by households on goods
and services.
PERSONAL CONSUMPTION
EXPENDITURES (C)
GOODS INCLUDE :
household spending on durable goods, such as
automobiles, appliance and any other goods that
last for more than one year, and
 non durable goods, such as food and medicines
and other goods that do not last for a longer
period of time.
PERSONAL CONSUMPTION
EXPENDITURES (C)
SERVICES INCLUDE :
Intangible items, such as haircuts,
massage, medical care, banking
and finance
GROSS PRIVATE DOMESTIC
INVESTMENT ( I )
Investment is the purchase of goods
that will be used in the future to
produce more goods and services.
It is some of purchases of capital
equipment (such as machineries),
inventories, and structures (such as
buildings)
GROSS PRIVATE DOMESTIC
INVESTMENT ( I )
Sum of two components
Fixed capital
Changes in stock
GOVERNMENT CONSUMPTION
EXPENDITURE AND GROSS
INVESTMENT (G)
This account includes the value
of goods and services that
government at all levels (i.e.
national, provincial, city and
municipal levels) purchases
measured by their costs.
NET EXPORTS (X-M)
Exports (X) are expenditures by foreigners
for Philippine goods produced
domestically.
Imports (M) are the dollar amount of
Philippine’s purchase of foreign products
like automobiles, oil from Saudi Arabia
and other goods.
2. INCOME APPROACH
It measures GDP by adding all the
income earned by households in
exchange for the factors of production
during a period of time.
 GDP = Compensation of Employees +
Rents + Profits + Net Interest + Indirect
Taxes + Depreciation or;
GDP = NY + IBT + D
COMPENSATION OF
EMPLOYEES
It comprises mainly of income earned
from wages, salaries and certain
supplements paid by firms and
government to suppliers of labor.
RENTAL INCOME OF
PERSONS
This includes the rental fees on houses,
apartments, and condominiums rented out by
landlords as well as the offices rented out by
building owners to businesses.
It includes also the fees on lands leased out by
land owners for the use of their property.
PROFITS
It includes those earned by self employed
proprietorships and partnerships who
simultaneously manage their businesses and at
the same time pay themselves for labor
services rendered to their firms.
Included are the corporate profits.
PROFITS
Three components of corporate profit
Dividends – made by join stock companies to
their shareholders for providing share capital.
Undistributed corporate profits – any after – tax
profits that are reinvested in the firm rather than
being paid out to the owners of the company
in the form of dividends.
Corporate income tax – direct tax levied by
the government on profits accruing to
businesses.
NET INTEREST

Household both receive and pay interest


Persons who make loans to businesses earns
interest income.
INDIRECT BUSINESS TAXES
Levied as a percentage of the prices of goods and
services sold and therefore become part of the
revenue received by the firms.
These includes VAT, excise tax on certain goods,
and customs duties
Indirect taxes are not income payments for the use
of resources, instead these are imposed on goods
and services produced by firms which are passed on
final consumers through higher prices.
DEPRECIATION

To reconcile the said accounts with GDP


requires adding consumption of fixed capital.
Depreciation is an allowance for the portion
of capital worm out producing GDP.
3. INDUSTRIAL ORIGIN
APPROACH (GROSS VALUE
ADDED APPROACH
Under this, the economy is divided into
three sectors composed of industries
Agriculture, fishery and foreign sectors
Industry sector
Service sector
3. INDUSTRIAL ORIGIN
APPROACH (GROSS VALUE
ADDED APPROACH
It is the domestic product of goods and
services produced by industries within
the country.
GDP = GVA + IBT
GDP SHORTCOMINGS
1. NON MARKET
TRANSACTIONS

Because GDP counts only market


transactions, it excludes certain unpaid
activities such as homemade production,
childcare, and homemade services like
repairs and maintenance.
1. NON MARKET
TRANSACTIONS
Reasons why they are not included:
It is difficult for national income accountants to
collect data and assign a peso value to services
people provide for themselves or others without
compensation.
It is difficult to determine which nonmarket to
exclude and which ones to include in the GDP.
2. DISTRIBUTION, KIND AND
QUALITY OF PRODUCTS
GDP does not reflect who exactly consumes
the goods and services produced by the
economy and whether the products and
serviced produced are of good quality or
not.
What is only being accounted is how much
goods and services have been produced
during the year.
3. NEGLECT OF LEISURE TIME

In general, the wealthier a nation becomes,


the more leisure time its citizens can afford.
Thus, rather than working longer hours,
workers often choose to increase their time
for recreation and travel.
As such, GDP also understates well – being
because no allowance is made for people
working fewer hours than they once did.
4. THE UNDERGROUND
ECONOMY
Illegal gambling, prostitution, the manufacture
and sale of illegal drugs and guns, loan – sharking
and illegal lending, and small time trading such as
the ambulant selling of food products, cigarettes
and services that meet all the requirements of
GDP.
Hence, if the underground economy is sizable,
GDP understates an economy’s performance.
5. ECONOMIC BADS

More production means a larger GDP, regardless


of the level of pollution created in the production
process.
Air, water and noise pollution are economic
“bads” that impose costs on society and the
environment but these are not reflected in private
market prices and quantities bought and sold.
NOMINAL or CURRENT
GDP vs. REAL GDP
NOMINAL OR CURRENT GDP

Is the value of all final goods and services based


on the prices existing during the time period of
production.
It is also referred as the current market price of
goods and services produced in a given period of
time.
REAL GDP

Is the value of all final goods and services


produced during a given time period based on
the prices existing in selected base year.

Real GDP = (Nominal GDP/GDP Defactor) x 100