NATIONAL INCOME

ACCOUNTING
Presentation By:
Talavera, Jenel S.
Esteban, Ma. Crisanta D.
Elliot, Grathel
 Economic
GROWTH vs. DEVELOPMENT
 Economic Growth
the increase in the inflation-adjusted
market value of the goods and services
produced by an economy over time. It is
conventionally measured as the percent rate
of increase in real gross domestic product
 Economic
GROWTH vs. DEVELOPMENT
 Economic Development
usually indicated by an increase in
citizens' quality of life, which is measured
using the Human Development Index.
➣ Human Development Index
an economic model that considers
intrinsic personal factors not considered in
economic growth, such as literacy rates,
life expectancy and poverty rates.
 Key Differences
 Economic growth is the positive change in the
real output of the country in a particular span
of time economy. Economic Development
involves a rise in the level of production in an
economy along with the advancement of
technology, improvement in living standards
and so on.
 Economic growth is one of the features of
economic development.
 Key Differences
 Economic growth is an automatic process.
Unlike economic development, which is the
outcome of planned and result-oriented
activities.
 Economic growth enables an increase in the
indicators like GDP, per capita income, etc. On
the other hand, economic development enables
improvement in the life expectancy rate, infant
mortality rate, literacy rate and poverty rates.
 Key Differences
 Economic growth is an automatic process.
Unlike economic development, which is the
outcome of planned and result-oriented
activities.
 Economic growth enables an increase in the
indicators like GDP, per capita income, etc. On
the other hand, economic development enables
improvement in the life expectancy rate, infant
mortality rate, literacy rate and poverty rates.
 Key Differences
 Economic growth can be measured when
there is a positive change in the national
income, whereas economic development can
be seen when there is an increase in real
national income.
 Economic growth is a short-term process
which takes into account yearly growth of the
economy. But if we talk about economic
development it is a long term process.
 Key Differences
 Economic Growth applies to developed
economies to gauge the quality of life, but as it
is an essential condition for the development, it
applies to developing countries also. In contrast
to, economic development applies to
developing countries to measure progress.
 Economic growth can be measured in a
particular period. As opposed to economic
development is a continuous process so that it
can be seen in the long run.
National Income Accounting

➟The measurement of the aggregate

economic activity of an economy.
It is useful in assessing the
performance of the macroeconomy &
helpful in evaluating the effectiveness
of policy initiatives.
National Income Accounting:
IMPORTANCE
 The inflationary or deflationary pressure in
an economy can be measured on the basis
of national income accounting.
 National income accounting measures the
welfare of the citizens of a country.
 Statistics regarding the national income data
is highly essential for the successful
operation of planning of an economy.
National Income Accounting:
IMPORTANCE
 National Income accounting also helps us to
know the contributions of various sectors
accounting we can know the respective
contribution of agriculture, industry and
service sectors to, the national income.
 National income accounting throws light on
the distribution of national income in an
economy.
 National Income Accounting:
IMPORTANCE
 It shapes the budgetary policy of the
Government, makes the borrowing and tax
policy in order to neutralize the fluctuations
of income and employment.
 National income statistics given a clear
picture of how the national expenditure is
divided between consumption and
investment.
 National income statistics also helps us to
know about the economic problems of
 National Income
 The National Income is the total amount
of income accruing to a country from
economic activities in a years time. It
includes payments made to all resources
either in the form of wages, interest, rent,
and profits.

NI=NNP- T
 National Wealth
 National wealth is the total monetary
value of the capital, goods and services,
including net foreign balance and tangible
assets, owned by a nation at a particular
period of time. Used in a nation's overall
economic analysis and planning. Net
worth or net wealth given by gross assets
minus liabilities. Also called national net
worth.
GDP & GNP
 GDP
 GDP stands for "Gross Domestic
Product" and represents the total
monetary value of all final goods and
services produced (and sold on the
market) within a country during a period
of time (typically 1 year).
 GNP
 GNP stands for "Gross National
Product" and represents the total value of
goods produced and services provided by
a country during a year;
 GDP vs GNP
 Domestic (GDP) 
"Domestic" (in "Gross
Domestic Product") indicates that the
inclusion criterion is geographical: goods
and services counted are those produced
within the country's border, regardless of
the nationality of the producer.
 GDP vs GNP
 National (GNP) 
"National" (in "Gross
National Product") indicates that the
inclusion criterion is based on citizenship
(nationality): goods and services are
counted when produced by a national of
the country, regardless of where the
production physically takes place.
 GDP vs GNP
 GDP = private consumption + gross private
investment + government investment +
government spending + (exports – imports).
Expressed in formula:
 GDP = C + I + G + (X – M)
∵ GNP= GDP+Z
where Z= net income earned by
domestic residents from overseas
LESS net income earned by foreign
residents from domestic investments.
Included in GDP:
Final goods and services sold for money.
Only sales of final goods are counted,
because the transaction concerning a good
used to make the final good is already
incorporated in the final good total value.
Not included in GDP:
 unpaid work: work performed within the
family, volunteer work, etc.
 non-monetary compensated work
 goods not produced for sale in the
marketplace
 bartered goods and services
 black market
 illegal activities
 transfer payments
 sales of used goods
 intermediate goods and services that are used
to produce other final goods and services.
Final vs Intermediate Goods
 Final Goods - those that are ready for
final consumption by the end-user.

 Intermediate Goods – those that are to be

processed further into other goods.
Approaches of Measuring
GDP
 Expenditure Approach
 Income Approach
 Product Approach
 Expenditure Approach
 Based on the value of everything that
is purchased within the country plus
that country’s net exports to other
countries.
 Expenditure Approach
 GDP = consumption (C) + investment (I)
+ government spending (G) + (exports (X)
- imports (M)).
Expressed in formula:
GDP = C + I + G + (X – M)
 Expenditure Approach
Consumption xx
Investment xx
Government Spending xx
Exports xx
Less: Imports (xx) xx
GDP XX
 Income Approach
 Based on the income of all the
individuals and businesses within the
country. Also called domestic income.
 Income Approach
 GDP = Total National Income + Indirect
Business Taxes + Depreciation + NFFI
Wherein;
TNI = Compensation to Employees (Wages) +
Rents + Interest + Proprietor’s Income +
Corporate Profits
NFFI= total income that a country’s citizen
and companies generate in foreign countries
LESS total income foreign citizens and
companies generate in that country.
 Income Approach
Compensation to Employees (Wages) xx
Rents xx
Interest xx
Proprietor’s Income xx
Corporate Profits xx
Total National Income xx
Add: Indirect Business Tax xx
Depreciation xx
NFFI xx
GDP XX
 Product Approach
 Based on the market value of
everything that is produced within the
country. Also called “Value-Added
Approach”
 Product Approach
 GDP= Σ(Price of Output – Cost of Input)
or
 GDP= Final Goods – Intermediate Goods
Product Approach
 Types of GDP
 Nominal GDP
 Real GDP
 Potential GDP
 Actual GDP
 Nominal vs Real GDP
 Nominal GDP (or "Current GDP") = face
value of output, without any inflation
adjustment
 Real GDP (or "Constant GDP") = value
of output adjusted for inflation or
deflation.
Potential vs Actual GDP
 Potential GDP is the level of production
of goods and services that the economy is
capable of if it’s workforce is fully
employed and its capital stock is fully
utilized.
 Actual GDP is the actual output of goods
and services.