1. CHAPTER 4
“National income
accounting”
Actual data are presented to help
illustrate how actual results can be
interpreted and trace to some
underlying factors which are reader
should understand more as the
course progresses.

2. A) GNP accounting: Meaning,
Purpose and Limitations:
 MEANING
(GNP) Gross National Product
- Market value of all final products
produced by the resources of the economy
during a specified period of time.

3. Three important limitations to zero in on the
identification of final products
First,
Excludes products not produced by the
resources of the economy as imports.
Second,
Definition only includes those products
that can no longer be use for higher stages of
production and therefore, have reached the
highest level of transformation using the economy’s
resources.
Products can be considered final once
they flow directly from the producing units to
consumption, the government and the rest of the
world.

4. Third,
Limitation is time and the definition
eliminates from the aforementioned
those not produced by the economy
within the period of time accounted.

5.  PURPOSE AND LIMITATIONS
GNP reflects the value of the economy’s
production since it also includes the value of
products from the lower stages of production.
GNP camera is a formal tool which cannot
picture the informal and hence, undeclared
activities in the economy.
Economic activities of a cigarette vendor is
undeclared and unrecorded. “underground
economy”

6. B) GNP Accounting:
Expenditure Approach
1. Framework:
a. Consumption
b. Government
c. Investment = consist of capital
goods and inventories
d. Rest of the world otherwise
known as exports

7. 1. Application: (TABLE 6)
The government has a share in
Gross Domestic Formation which are
capital goods.
- Government consumption
expenditures are for non-capital goods
used to maintain the operations of the
bureaucracy.

8. - Net increase in stock is the difference
between the aggregate flow of goods (+) and
from (-) the inventory system.
- Net Foreign Factor income is the
difference between the aggregate flow of factor
payment from (+) and to (-) the rest of the
world.
- The inflow (+) is likened to exports as it
consists of payments for the use of the
economy’s resources in the rest of the world
like remittances of Filipinos working in the
Middle East, profit remittances of Filipinos
investment and the like.

9. - The outflow (-) is likened to imports
as it consist of payment for economy’s
use of foreign resources like profit
remittances of foreign multinational
companies to their mother countries for
their investments in the Philippines.
- Statistical Discrepancy is a
theoretical account use to even out of the
practical differences between the figures
arrived at by the two alternative
approaches to GNP accounting.

10. - In Table 6, the share in GNP of
Personal Consumption Expenditures
decreased from 65.5% in 2000 to 64.4%
in 2002 as more money was spent for
Government Consumption Expenditure,
Gross Domestic Capital Formation, and
Exports. The potential of the economy to
produce and support consumption
through investment and imports as
sourced from exports gradually
increased.

11. Table 6
GROSS NATIONAL PRODUCT (GNP) BY
EXPENDITURE for periods indicated (in million
pesos, at current prices)
2000 2001 2002
1. Personal Consumption Expenditure 2335535 2565022 2750853
2. Government Consumption Expenditure 438853 444834 488740
3. Gross Domestic Capital Formation 710073 758460 776191
A. Fixed Capital Formation 710489 720702 774078
B. Increase in Stock -416 37758 2113
6. Exports of Goods and Services 1858576 1785232 1963534
7. Less: Imports of Good & Non-Factor 1794717 1899385 19891046
8. Statistical Discrepancy -93598 19524 27480
Expenditures on Gross Domestic Product 3354727 3673687
4022694
Net factor Income from Abroad 211332 244992
267505

12. C) GNP Accounting:
Income Approach
1. Framework:
GNP is equal to the additive
values of factors contributions in the
process of transforming products into
their final forms.

13. 3 Essential Features which are the pillars
of the approach:
1. Direct payment of the producing units to the
resource owners represent the latter’s direct
contributions to production otherwise known as
factor contributions.
2. Additives values of the products in the whole
production process.
3. Built in mechanism to excludes imports and
previously produced inventories but include
currently produced inventories.
 Factor contributions result from the use of land,
labor, capital and entrepreneurship with rent,
wages and salaries, interest and profit as their
respective payments.

14. 2. Applications:
GNP figures can be presented using the
income approach.
• Statistical Discrepancy
- Any practical difference is evened out
by the theoretical account of in the expenditure
approach.
• Capital Consumption Allowances
- Depreciation represent payments to
the resources owners for the consumption of
capital goods in the production process and
likewise considered as factor contribution.

15.  The approach also includes Government
Income from Property and Entrepreneurship
since the government enterprises concerned
are part of the production system and
produces private goods and services.
 On the other hand, Subsidies, are excluded
since they only bloat profits and product
values and do not entail production and factor
contributions

16. 3. Factor Contributions by
Sector (Industrial Origin)
 The Table 7 shows that the manufacturing
and commercial sectors are among the heavy
contributors to the economy’s production.
 The share of the manufacturing sector
alone, as outstripping that of agriculture,
Fishing, and Forestry combines, indicated the
leanings of the economy toward
industrialization

17. Gross National Product (GNP) by Industrial
Origin for periods indicated (in million pesos, at
current prices
1.

18. D) Other concepts of National
Income Accounting
1. Net National Product and National
Income:
• Net National Product (NNP)
- value foe a more accurate
accounting of the economy’s final products
which is equal to GNP les Depreciation.
• National Income (NI)
- Income earned by the factor owners
and equal to NNP, less indirect taxes, levied
on production and not on income.

19. 2. Personal Income:
• Personal Income (PI)
- Income earned by persons or
households.
a. corporate taxes
b. undistributed profit
c. government entrepreneurial
income
- Transfer payments from the
government and the rest of the world like
pensions from the Philippines
Government, money sent by relatives
from U.S and the like.

20. PI = NI – (S + T + 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

21.  Personal Income is alternatively
expressed according to source, as
follows:
PI = W + D + E + TP
Where additionally:
W = Wages and Salaries
D = Dividends of Distributed
Profits
E = Entrepreneurial and Property
Income of Persons

22. 3. Disposable Income and Consumption:
• Disposable Income (DI)
- Personal income available for
consumption as it excludes
Personal taxes.
- Consumption is equal to
disposable income (DI) less
savings (S).
DI = PI – PT
C = DI – PS
therefore:
C = PI - PT - PS

23. Where:
DI = Disposal Income
C = Consumption
PI = Personal Income
PT = Personal Taxes
PS = Personal Savings