NATIONA L I NC O M E

A CC O U NT I N G
F FE RSON ”K OKO” B. ANT ONIO
HON. J E
NATIONAL INCOME ACCOUNTING
• THIS CHAPTER PRESENTS THE MEASURES AND STRUCTURES OF ACTIVITIES IN THE ECONOMIC SYSTEM
AS INTRODUCED IN THE PRECEDING CHAPTERS.

ACTUAL DATA ARE PRESENTED TO HELP ILLUSTRATE HOW ACTUAL RESULTS CAN BE INTERPRETED AND
TRACED TO SOME UNDERLYING FACTORS WHICH THE READER SHOULD UNDERSTAND MORE AS THE
PROGRESSES.
GNP ACCOUNTING

• GROSS NATIONAL PRODUCT ( GNP ) IS DEFINED AS MARKET VALUE OF ALL FINAL PRODUCTS PRODUCED
BY THE RESOURCES OF THE ECONOMY DURING A SPECIFIC PERIOD OF TIME.
THIS GIVES THREE IMPORTANT LIMITATIONS TO ZERO IN ON THE IDENTIFICATION OF FINAL PRODUCTS.
GNP ACCOUNTING
 

• THE DEFINITION EXCLUDES PRODUCTS NOT PRODUCED BY THE RESOURCES OF THE ECONOMY AS IMPORTS.
• THE DEFINITION ONLY INCLUDES THOSE PRODUCTS THAT CAN NO LONGER BE USED FOR HIGHER STAGES OF
PRODUCTION, MEANING IT REACHED THE HIGHEST LEVEL OF TRANSFORMATION USING THE ECONOMY’S
RESOURCES.

• THE LAST ONE IS TIME AND THE DEFINITION ELIMINATES FROM AFOREMENTIONED THOSE NOT PRODUCED BY
THE ECONOMY WITHIN THE PERIOD OF TIME ACCOUNTED.
THE GNP
• THESE PRODUCTION STAGES ARE THE HIGHEST LEVEL OF TRANSFORMATION ATTAINED FOR THE PRODUCTS
IN THAT PERIOD USING THE ECONOMY’S RESOURCES.

CONSUMPTION GOODS AND PRODUCTION MATERIALS PRODUCED BUT UNSOLD DURING THE YEAR
ACCOUNTED CLEARLY FALL UNDER THE CATEGORY OF UNUSED FINAL PRODUCTS IN THE FORM OF STOCKS.

ON THE OTHER HAND, CAPITAL GOODS PRODUCED IN THE PERIOD ARE ACCOUNTED WHETHER UNSOLD OR
SOLD AND ARE ESSENTIALLY CONSIDERED AS STOCKS AS IN THE FOREGOING AND CLASSIFIED PRODUCTS.
THE GNP
• ECONOMIC PLANNING AND POLICY MAKING REQUIRE A MEASURE OF AGGREGATE ECONOMIC ACTIVITIES AND AN
IDENTIFICATION OF THEIR STRUCTURES. THESE ACTIVITIES ARE REFLECTED IN THE VALUE OF PRODUCTS FLOWING
IN THE CIRCULAR FLOW, THE PRODUCTION OF WHICH ENTAILS THE USE OF THE ECONOMY’S RESOURCES.

GNP FIGURES SHOW THE STRUCTURE OF PRODUCTION ACCORDING TO END USE AND FACTOR CONTRIBUTION.
BOTH WILL BE ILLUSTRATED IN SUBSEQUENT DISCUSSIONS ON THE ALTERNATIVE APPROACHES TO GNP
ACCOUNTING.
THE GNP
• HOWEVER, GNP CAMERA IS A FORMAL TOOL WHICH CANNOT PICTURE THE INFORMAL AND HENCE,
UNDECLARED ACTIVITIES IN THE ECONOMY. THE ACTIVITIES IN THE HOUSEHOLD, CONSTITUTE INFORMAL
PROCESSING OF PRODUCTS, BUT ANY PRODUCT SOLD TO TE HOUSEHOLDS IS CONSIDERED FINAL FOR
PRACTICAL PURPOSES.

ON THE OTHER HAND, ECONOMIC ACTIVITIES OF A CIGARETTE VENDOR IS UNDECLARED AND

UNRECORDED JUST LIKE OTHER ACTIVITIES IN THE SO CALLED “UNDERGROUND ECONOMY”.
EXPENDITURE APPROACH

• THIS APPROACH IDENTIFIES THE FINAL PRODUCTS ACCORDING TO THE PRINCIPLES DISCUSSED. THE FOLLOWING
EQUATIONS SHOWS THE FRAMEWORK OF THE APPROACH

GROSS NATIONAL PRODUCT = CONSUMPTION + INVESTMENT + GOVERNMENT SPENDING

* (EXPORTS – IMPORTS) – WHERE AS ALSO CALLED NET EXPORTS

OR

GNP = C + I + G (X-M)
EXPENDITURE APPROACH

• THE GROSS CAPITAL DOMESTIC FORMATION WHICH ARE CAPITAL GOODS, WHEREAS GCE ARE FOR NON- CAPITAL GOODS USED TO MAINTAIN
THE OPERATIONS OF BUREAUCRACY.

NET INCREASE IN STOCKS IS THE DIFFERENCE BETWEEN THE AGGREGATE FLOW OF GOODS (+) AND FROM THE INVENTORY SYSTEMS (-).

INFLOWS AS A PART OF GNP MAY NOT BE ENTIRELY CONSIST OF GOODS THAT CAN BE CLASSIFIED AS FINAL SINCE SOME MAY BE PREVIOUSLY
PRODUCED FROM ONE FIRM TO ANOTHER, IN THE PERIOD ACCOUNTED.

NET FOREIGN FACTOR INCOME IS THE DIFFERENCE BETWEEN THE AGGREGATE FLOW OF FACTOR PAYMENTS FROM AND TO THE REST OF THE
WORLD.
EXPENDITURE APPROACH

• EXCLUDING THIS FROM GNP LEAVES THE VALUE OF GROSS DOMESTIC PRODUCT WHICH IS THE VALUE OF FINAL
PRODUCTS PRODUCED BY THE RESOURCES IN THE ECONOMY.

STATISTICAL DISCREPANCY IS A THEORETICAL ACCOUNT USED TO EVEN OUT THE PRACTICAL DIFFERENCES BETWEEN
THE FIGURES ARRIVED AT BY THE TWO ALTERNATIVE APPROACHES TO GNP ACCOUNTING.

EXPORTS AS A RESULT. THE POTENTIAL OF THE ECONOMY TO PRODUCE AND SUPPORT CONSUMPTION THROUGH
INVESTMENT AND IMPORTS AS SOURCED FROM EXPORTS GRADUALLY INCREASED.
INCOME APPROACH

• GNP IS EQUAL TO THE ADDITIVE VALUES OF FACTOR CONTRIBUTIONS IN THE PROCESS OF TRANSFORMING PRODUCTS INTO THEIR FINAL
FORMS.

THREE ESSENTIAL FEATURES WHICH ARE THE PILLARS OF THE APPROACH.

I)
DIRECT PAYMENTS OF THE PRODUCING UNITS TO THE RESOURCE OWNERS REPRESENT THE LATTER’S DIRECT CONTRIBUTIONS TO
PRODUCTION OTHERWISE KNOWN AS FACTOR CONTRIBUTIONS AND SHOULD BE NOTED THAT RESOURCE OWNERS ARE DISTINCT FROM
PRODUCING UNITS BUT PROVIDE THE LATTER WITH THE BASIC FACTORS OF PRODUCTION.
INCOME APPROACH

• II) SECOND, THE ADDITIVE VALUES OF THE PRODUCTS IN THE WHOLE PRODUCTION PROCESS RESULTS
FROM THE DIRECT CONTRIBUTION OF RESOURCES OWNERS IN EVERY PRODUCTION STAGE TO
TRANSFORM PRODUCTS OR INPUTS TO HIGHER FORMS.

III) THE APPROACH HAS A BUILD-IN MECHANISM TO EXCLUDE IMPORTS AND PREVIOUSLY PRODUCED
INVENTORIES BUT INCLUDE CURRENTLY PRODUCED INVENTORIES.
INCOME APPROACH

• CAPITAL CONSUMPTION ALLOWANCE OR DEPRECIATION REPRESENTS PAYMENTS TO THE RESOURCES OF

OWNERS FOR THE CONSUMPTION OF CAPITAL GOODS IN THE PRODUCTION PROCESS AND LIKEWISE
CONSIDERED AS A FACTOR CONTRIBUTION.

SUBSIDIES ARE EXCLUDED SINCE THE ONLY BLOAT PROFITS AND PRODUCT VALUES AND DO NOT ENTAIL
PRODUCTION AND FACTOR CONTRIBUTIONS.
INCOME APPROACH

• THE FIGURES DERIVED BY THE INCOME APPROACH CAN BE REARRANGED ACCORDING TO ECONOMIC
SECTOR TO REFLECT SECTORAL CONTRIBUTIONS TO ECONOMIC ACTIVITIES.
CONCEPTS OF NATIONAL INCOME ACCOUNTING

• NET NATIONAL PRODUCT (NNI) IS A FINE-TUNED VALUE OF A MORE ACCURATE ACCOUNTING OF THE ECONOMY’S FINAL PRODUCTS
WHICH IS EQUAL TO GNP LESS DEPRECIATION.

DEPRECIATION PARTLY CONSIST OF THE CONSUMPTION OF CAPITAL GOODS PREVIOUSLY PRODUCED AND SHOULD NOT BE
REFLECTED AND SHOULD NOT BE REFLECTED IN THE ACCOUNTING OF PRODUCTION ACTIVITIES AND GNP OF THE YEAR ACCOUNTED.

NATIONAL INCOME (NI) IS THE INCOME EARNED BY THE FACTOR OWNERS AND EQUAL TO NNP LESS INDIRECT TAXES, THE LATTER
LEVIED ON PRODUCTION AND NOT ON INCOME.
CONCEPTS OF NATIONAL INCOME ACCOUNTING

• THIS IS THE INCOME EARNED BY PERSONS. THE INITIAL PROCEDURE DEDUCTS FROM NI NON-PERSONAL ACCOUNTS
SUCH AS TAXES, UNDISTRIBUTED PROFIT, AND GOVERNMENT ENTREPRENEURIAL INCOME.

THE FOLLOWING EQUATIONS ILLUSTRATES THE PROCEDURE:

PERSONAL INCOME = NATIONAL INCOME – (CORPORATE SAVINGS + CORPORATE TAXES + GOVERNMENT INCOME) +
TRANSFER PAYMENTS OR

PI = NI – (S +T + GI) + TP
CONCEPTS OF NATIONAL INCOME ACCOUNTING

• ON THE OTHER HAND, PI IS ALTERNATELY EXPRESSED AS:

PERSONAL INCOME = WAGES + DIVIDENDS + PROPERTY INCOME OF PERSONS OR

PI = W + D + E + TP

~NOTE THAT “ W + D + E” REPRESENTS PRODUCTION OR ECONOMIC INCOME OF PERSONS.

CONCEPTS OF NATIONAL INCOME ACCOUNTING

• THIS IS A PERSONAL INCOME AVAILABLE FOR CONSUMPTION AS IT EXCLUDES PERSONAL TAXES. ON THE
OTHER HAND, CONSUMPTION IS EQUAL TO DISPOSABLE INCOME LESS SAVINGS:

DI = PI-PT
C = DI-PS

THEREFORE: CONSUMPTION = PERSONAL INCOME – PERSONAL TAXES – PERSONAL SAVINGS

C = PI - PT – PS
CURRENT AND REAL GNP
• CURRENT GNP IS A VALUE USING CURRENT PRICES.
REAL GNP USES A BASE OR CONSTANT PRICE.
THESE ARE ILLUSTRATED AS:
CURRENT GNP = CURRENT PRICE * CURRENT VOLUME OF GOODS AND SERVICES
OR CURRENT GNP = PC * QC

REAL GNP = BASE PRICE * CURRENT VOLUME OF GOODS AND SERVICES

OR REAL GNP = PB * QC
CURRENT AND REAL GNP
• PRICE INDEX: PC / PB
IF PB = PC/ PRICE INDEX
CURRENT GNP = PCQC

THEN:
REAL GNP = PBQC = PCQC/PRICE INDEX
WHERE:
▲ = CHANGE
CURRENT AND REAL GNP

• PRICE INDEX OR GNP DEFLATOR AND MOST COMMONLY USED IS THE CONSUMER’S PRICE INDEX.
THIS IS A PROXIMATE REFLECTION OF THE PRICES OF THE FINAL GOODS AND SERVICES OF THE ECONOMY
SINCE CONSUMPTION IS A SIGNIFICANT PORTION OF GNP AS IT COMPETES WITH THE OTHER
EXPENDITURE COMPONENTS.
THANK YOU FOR LISTENING!

THE END
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