CHAPTER 12

NATIONAL INCOME
ACCOUNTING

National Income Accounting

Gross Domestic Product (GDP)

Gross National Product (GNP)
Net Foreign Factor Income
Statistical Discrepancy
Disable Income
Consumption
Investment
GNP Deflator

GNP Three(3) important

limitations
first, the definition excludes products
second, the definition only includes those
products
third, limitation is time and definition eliminates
those not produced.
Purpose and Limitations
economic planning and policy making require a
measure of aggregate economic activities and
identification of structures.

GNP ACCOUNTING: EXPENDITURE APPROACH

The following equations shows the framework of the approach:
GNP = C + I + G + (X-M)
where
GNP = Gross National Product
C = Consumption
I = Investment
G = Government Spending
X = Exports
M = Imports
(X-M) = Net Exports

2000

2000

2001

1. Personal Consumption Expenditures

2750853

2335535

2565022

2. Government Consumption Expenditures

488740

438853

444834

3. Gross Domestic Capital Formation

776191

710073

758 460

A. Fixed Capital Formation

774078

710489

720702

B. Increase in Stocks
2113

-416

37758

4. Exports of Goods and Services

1963534
5. Less: Imports of Goods and Non-Factor Services
19891046
6. Statistical Discrepancy
27480
Expenditures on Gross Domestic Product

1858576
1794717
-193598
3354727

1785232
1899385
19524
3673687

1) Framework

STAGE 1 (Raw Materials)

Factor
Contributions
E
qual

Value of Raw
Materials

STAGE 2 (Intermediate Products)

Purchases from
Stage 1
Factor
Contributions
Value of Intermediate
Products

STAGE 3 (Final Products)

Purchases from
Stage 2

Factor Contributions

Value of Firm
Products

2) Application GNP figures can be presented using the income

approach.

Other Concepts of National

Income Accounting

1.
2.
3.
4.
5.

Net National Product and National Income

value for a more accurate accounting of the
economys final products which is equal to GNP
less depreciation.
Personal Income
income earned by persons or households.

Personal Expenditure (C)

xxxxx
Gross Domestic Capital Formation of Investment
xxxxx
Government Expenditures
xxxxx
Net Exports (X M)
xxxxx
Statistical Discrepancy (SD)
xxxxx
Gross Domestic Product (GDP)
xxxxx
6. Net factor income (NFY)
xxxxx
Gross Domestic Product (GNP)
xxxxx
For easy recall, we can use the following shortcuts:
C + I + G + (X M) + NFY = GNP

TABLE 31
Gross National Product, Income Approach
1. Income of Person (PY)
xxxxx
2. Corporate Income (CY)
xxxxx
3. Government income from capital (GY)
xxxxx
National Income (NI)
xxxxx
4. Indirect Tax (IT)
xxxxx
Less: subsidies
xxxxx
xxxxx
5. Capital Consumption Allowance or
Depreciation Allowance (DA)
xxxxx
Gross National Product
xxxxx
For easy recall, one can use the following shortcuts:
PY + CY + CY = N.I
+ I.T-S
+ D.A.
GNP

TABLE 32
NATIONAL INCOME ACCOUNTING
Gross National Product, Industrial Origin
(Or Value-Added Approach)
1. Agriculture (A)
xxxxx
2. Industry (I)
xxxxx
3. Services (S)
xxxxx
Gross Domestic Product (GDP)
xxxxx
4. Net Factor Income (NFY)
xxxxx
Gross National Product
xxxxx
For easy recall, one can use the following shortcuts:
A
+I
+S
GDP
NFY
GNP

The following equation illustrates the procedure:

PI = NI (S + GI) + TP
where:
PI= Personal Income
NI= National Income
S= Undistributed Profits or Corporate savings
T= Corporate Taxes
GI= Government Entrepreneurial Income
TP= Transfer Payments
On the other hand, personal income is alternatively expressed according
to source, follows:
PI = W + D + E + TP
where additionally:
W= Wages and Salaries
D= Dividends or Distributed Profits
E= Entrepreneurial and Property Income of Persons
Disposable Income and Consumption
personal home available for consumption as it expenditures personal
taxes.
There:
C = PI PT PS
DI = PI PT
C = DI PS

Where:
DI= Disposable Income
C= Consumption
PI= Personal Income
PT= Personal Taxes
PS= Personal Savings
E. CURRENT VERSUS REAL GNP
Framework and Rationale
Current GNP is a value using current whereas Real GNP uses a base or
constant price. The difference is illustrated yhe following equations:
If: Pb =
Pc
Current GNP = Pc Qc
Price Index
Real GNP
= P c Qc
Current GNP = Pb Qc
where:
Pc = Current Price
Then:
Pb = Base Price
Qc = Current Volume of Goods and Services Real GNP = Pb Qc
Price Index = Pc
P c Qc
Pb
=
Pc P
Price Index
=
Current GNP
Pb
=
Price Index

First Semester
1. Personal Consumption Expenditures
752066
779011
810753
385958
405260
2. Government Consumption Expenditures
79649
75413
77192
39314
37149
3. Gross Domestic Capital Information
239054
244020
235516
111714
121264
A. Fixed Capital Formation
240056
231186
236704
117494
118120
B. Increase in Stocks
-1002
12834
-1188
-5780
3144
4. Exports of Goods and Services
445673
430339
445833
213232
218737
5. Less: Imports of Goods and Non-Factor
490768
508044
532174
256855
293878
6. Statistical Discrepancy
-52714
-19024
8963
5194
29220
Expenditures on Gross Domestic
Product(GDP)
972960
1001715
1046083
498557
517752
Net Factor Income from Abroad
63432
71351
74956
35200
41488
Expenditures on Gross National Product
1036392
1073066

Agriculture,
Fishery, and
Forestry 15%

Industry
Service Sector
Sector
53%
32%
FIGURE 98
Gross Domestic Product by Industrial Origin: 2001
(at current prices)

Table 34
GDP(% Real Growth)
A

A Glass Half Full

Cielito F. Habito
Philippine Daily Inquirer, March 14, 2005
In spite of all the griping, the countrys full year 2004 economic
performance, as reported in recent data, actually had quite a bit of
good news.
If I had the task of convincing investors that the Philippines
deserved a prominent place in their radar screens at this time, the
following are what I would cite.

Improved Production
Full year economic growth in 2004 was actually better
than the targets, and better than before. The 6.1 percent
growth in both GNP and GDP overshot the 5.0-5.7 percent
target range of the government, and improved on the 5.5
percent growth achieved in 2003.
Stronger Demand
The improved performance of the productive sectors was
likewise reflected on the demand side, with personal
consumption and investment expenditures showing
strong and faster growth. Personal consumption grew by
5.8 percent, better than its 5.3 percent growth in 2003,
still supported by the purchasing power provided by brisk
growth in overseas remittances. But more noteworthy was
growth in real investment, which showed vast
improvement from its stagnant 0.1 percent performance
in 2003, to a double-digit 12.7 percent growth in 2004. In
particular, construction turned around from its negative
performance in 2003 (-2.9 percent) to a healthy 6.2