The National Income Accounts
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CHAPTER 6 THE NATIONAL INCOME ACCOUNTS
LESSON 1 MEASUREMENT OF NATIONAL INCOME
OVERVIEW • THE INCOME OF THE NATION IS MEASURED BY THE TOTAL EARNINGS OF THE FACTORS OF PRODUCTION OWNED BY ITS CITIZENS OR BY THE TOTAL MARKET VALUE OF ALL FINAL GOODS AND SERVICES PRODUCED BY THE CITIZENS. • SUCH EARNINGS OR MARKET VALUE OF FINAL GOODS AND SERVICES ARE ESTIMATED ON A YEARLY BASIS. SUCH MEASUREMENTS REFLECT THE PERFORMANCE OF THE ECONOMY.
THE GROSS NATIONAL PRODUCT • The Gross National Product or GNP refers to the market value of all the final products produced by the resources of the economy during na specified period of time. • GNP reflects the value of the products flowing in the circular flow, the production of which entails the use of the economy’s economic resources.
THREE MAJOR TYPES OF GOODS IN THE GNP 1. Goods and services which enter into the channel of trade and commerce; 2. Products which are produced and consumed by the producers; and
3. Imputed value in rentals. Note: 1. GNP excludes second-hand items as they merely represent a change in ownership of a good produced earlier, unless there is capital gain. 2. Final product is merely an attempt to avoid double counting – a problems that makes the determination of the gross national product very difficult.
THREE MAJOR TYPES OF GOODS IN THE GNP 1. Goods and services which enter into the channel of trade and commerce; 2. Products which are produced and consumed by the producers; and
3. Imputed value in rentals. Note: 1. GNP excludes second-hand items as they merely represent a change in ownership of a good produced earlier, unless there is capital gain. 2. Final product is merely an attempt to avoid double counting – a problems that makes the determination of the gross national product very difficult.
LIMITATION OF GNP 1. The national income in less developed countries is understated insofar as many products which have been produced and consumed are excluded (small-scale industries whose products are only used for family consumption, various trade transactions, some of which are not place in the market).
2. Inadequacy and inaccuracy of statistics. 3. GNP only measures the number of goods and services but not the quality of goods and services. 4. GNP does not reflect the distribution of income among members of society. Income of the rich and poor are combined to come up with an average per capita income (PCI). 5. Per Capital Income (PCI) is income per head.
LIMITATION OF GNP 5. Per Capital Income (PCI) is income per head. The formula is: PCI = National Income Population
SO, IF THE NATIONAL INCOME IS PHP 950,000,000,000.00 AND THE POPULATION IS 100,000,000, PCI IS PHP 9,500.00.
THE GROSS DOMESTIC PRODUCT (GDP) • The Gross Domestic Product (GDP) is comprised of final goods and services produced with national boundaries. • The GDP is a tool that measures the value of all locallyproduced goods and services at market price.
• GDP does not include the earnings of Filipino factors of production abroad as they are part of GNP.
THE DIFFERENCE BETWEEN GDP AND GNP • The difference between GDP and GNP is called net factor income from abroad (NFIA). • It regards earnings of banking system as inflows and repatriation to foreign factors of production as outflows.
• NFIA is added to GDP to arrive at GNP. • A simple formula is: GNP = GDP + NET FACTOR INCOME FROM ABROAD.
THE DIFFERENCE BETWEEN GDP AND GNP
MEASURING THE GNP • The GNP can be measured in two (2) ways: 1. CURRENT GNP 2. REAL GNP CURRENT GNP = PcQc Where: Pc = Current Price Qc = Current Volume of Goods and Services
• At current price, GNP could not be exactly determined. An increase in prices of goods and services will automatically increase the GNP even if there is no actual increase in the volume of production.
MEASURING THE GNP • If GNP is really made to measure the market value of total production, the effect of price changes must be eliminated so as to show GNP values which reflect only changes in quantity. REAL GNP • The measurement using a base or constant price. • This means expressing GNP for several years at prices of a single year. • In real GNP, the effect of price changes is eliminated so as to show GNP values which reflect only changes in quantity. • Real GNP is computed from current GNP using a price coefficient known as the PRICE INDEX or GNP deflator. • A price index is needed to divided the GNP current prizes in order to reexpress it at constant peso terms. • The price index must reflect well the average increase of prices of all goods and services using the price of a given year as the point of comparison.
MEASURING THE GNP REAL GNP • Formula: REAL GNP = CURRENT GNP PURE NO. INDEX WHERE: PURE NO. INDEX = PRICE OF CURRENT YEAR BASE YEAR PRICE
MEASURING THE GNP REAL GNP PURE NO. INDEX = PRICE OF CURRENT YEAR BASE YEAR PRICE
YEAR
A CURRENT PRICE / CAVAN OF RICE
B BASE PRICE (1986 PRICE)
C PURE NO. INDEX (A ÷ B)
PRICE INDEX (MULTIPLY C BY 100)
1986
350
350
1.0
100
1987
425
350
1.21
121.42
1988
475
350
1.36
135.71
MEASURING THE GNP REAL GNP REAL GNP = CURRENT GNP PURE NO. INDEX
YEAR
A VALUE OF CURRENT PRICES
B PURE NO. INDEX
VALUE AT CONSTANT PRICES (A ÷B)
1986
250,000
1.0
250,000.00
1987
458,000
1.21
378,512..40
1988
625,000
1.36
459,558.82
WITH THE REAL GNP, WE ARE NOW SURE THAT THE INCREASE IN GNP IS DUE TO THE ACTUAL INCREASE IN THE VOLUME OF PRODUCTION, AND NOT DUE TO THE INCREASE IN PRICES OF GOODS AND SERVICES.
LESSON 2 OTHER APPROACHES OF MEASURING GNP
EXPENDITURE APPROACH 1. GNP IS MEASURED IN TERMS OF TOTAL SALES OF THE ECONOMY, WHICH ARE BASICALLY , THE TOTAL EXPENDITURES OF OUR ECONOMY. 2. GNP IS THE SUMMATION OF THE CONSUMPTION, INVESTMENT, GOVERNMENT EXPENDITURES AND EXPORT MINUS IMPORTS OR NET EXPORTS.
GNP = C + I + G + (X – M) Where: C
=
I G X–M
= = =
Consumption spending by household /Private Consumption Expenditures Investment Government Spending Exports minus Imports (Net Exports)
MEASURING THE GNP REAL GNP GNP AND GDP BY EXPENDITURES SHARES (@ CURRENT AND CONSTANT PRICES) Expenditure Type
AT CURRENT PRICES 2009
2010
GROWTH RATE
GROSS DOMESTIC PRODUCT
7,678,917
8,513,037
10.9
NET FACTOR INCOME FROM REST OF THE WORLD
1,131,067
1,237,157
GROSS NATIONAL PRODUCT
8,809,984
9,750,193
1. PERSONAL CONSUMPTION EXPENDITURE 2. GOVERNMENT CONSUMPTION CAPITAL FORMATION EXPORTS LESS: IMPORTS
GROSS NATIONAL INCOME
10.7
MEASURING THE GNP REAL GNP GNP AND GDP BY EXPENDITURE SHARES (@ CURRENT AND CONSTANT PRICES) Expenditure Type
AT CONSTANT PRICES 2009
2010
GROWTH RATE
1,432,115
1,537,152
7.3
222,821
236,198
GROSS NATIONAL PRODUCT
1,654,936
1,773,350
GROSS NATIONAL INCOME
1,718,804
1,857,254
1. PERSONAL CONSUMPTION EXPENDITURE 2. GOVERNMENT CONSUMPTION 3. CAPITAL FORMATION 4. EXPORTS LESS: IMPORTS
GROSS DOMESTIC PRODUCT NET FACTOR INCOME FROM REST OF THE WORLD
7.2
INCOME APPROACH 1.
MAIN COMPONENT: NATIONAL INCOME
2.
NATIONAL INCOME IS THE SUM TOTAL OF ALL FACTOR INCOME OF PERSONS AND HOUSEHOLD (WAGES AND SALARIES, PROFITS AND DIVIDENDS, RENT AND INTEEST) AND GOVERNMENT INCOME DERIVED FROM CAPITAL AND UNDISTRIBUTED CORPORATE INCOME.
3.
NATIONAL INCOME IS INCLUSIVE ALSO OF INDIRECT TAX, A TAX PAID ON THE SALE OF PRODUCT USUALLY SHOULDERED BY THE CONSUMERS AND DEPRECIATION ALLOWANCE WHICH IS A FEE FOR THE PRESENT USE OF MACHINES AND BUILDINGS THAT HAS BEEN INSTALLED IN THE PAST.
GNP = NI + INDIRECT TAXES + DEPRECIATION Where: NI IT D
= = =
NATIONAL INCOME INDIRECT TAXES DEPRECIATION
MEASURING THE GNP REAL GNP GNP AND GDP BY INDUSTRIAL ORIGIN (@ CURRENT PRICES) INDUSTRY / INDUSTRY GROUP
AT CONSTANT PRICES 4TH Q - 2009
4TH Q-2010
GROWTH RATE
2,215,226
2,431,902
9.8
309,698
328,192
2,524,923
2,760,094
1. AGRI./ FISHERY / FORESTRY 2. INDUSTRY SECTOR 3. SERVICE SECTOR GROSS DOMESTIC PRODUCT
NET FACTOR INCOME FROM REST OF THE WORLD GROSS NATIONAL PRODUCT
9.3
THE INDUSTRY-ORIGIN APPROACH 1. THE GNP IS DERIVED BY GETTING THE SUM OF THE GROSS VALUE-ADDED BY ALL SECTORS OF THE ECONOMY. THESE SECTORS ARE: •
AGRICULTURE, FISHERY, FORESTRY
•
INDUSTRY
•
SERVICE
GNP =
SUM OF THE GROSS VALUE-ADDED OF ALL SECTORS + INDIRECT TAX
+ DEPRECIATION
MEASURING THE GNP REAL GNP GNP AND GDP BY INDUSTRIAL ORIGIN (@ CONSTSNT PRICES) INDUSTRY / INDUSTRY GROUP
AT CONSTANT PRICES 4TH Q - 2009
4TH Q-2010
GROWTH RATE
GROSS DOMESTIC PRODUCT
397,736
425,927
7.1
NET FACTOR INCOME FROM REST OF THE WORLD
60,684
62,986
GROSS NATIONAL PRODUCT
458,420
488,913
1. AGRI./ FISHERY / FORESTRY 2. INDUSTRY SECTOR 3. SERVICE SECTOR
6.7
LESSON 3
OTHER CONCEPTS OF NATIONAL INCOME ACCOUNTING
OTHER CONCEPTS OF NATIONAL INCOME ACCOUNTING 1.
2.
NET NATIONAL PRODUCT (NNP)
•
THE TOTAL SALES VALUE OF OUTPUT AFTER DEDUCTING CAPITAL CONSUMPTION OR DEPRECIATION AND INDIRECT TAXES OF NET SUBSIDIES.
•
NNP = DEPRECIATION – INDIRECT TAXES OF NET SUBSIDIES
PERSONAL INCOME (PI)
•
THE INCOME RECEIVED BY THE HOUSEHOLDS
•
PI = NI – CI +D +TP WHERE
:
PI
=
PERSONAL INCOME
NI
=
NATIONAL INCOME
CI
=
CORPORATE INCOME
D
=
DIVIDENDS
TP
=
TRANSFER PAYMENTS
OTHER CONCEPTS OF NATIONAL INCOME ACCOUNTING 2.
PERSONAL INCOME (PI)
•
OTHER ALTERNATIVE OF EXPRESSING PI IS: PI = W + D + E + TP WHERE
:
W
=
WAGES AND SALARIES
D
=
DIVIDENDS
E
=
ENTREPRENEURIAL /PROPERTY INCOME OF PERSONS
TP
=
TRANSFER PAYMENTS
OTHER CONCEPTS OF NATIONAL INCOME ACCOUNTING 2.
PERSONAL DISPOSABLE INCOME (PDI)
•
AN INCOME USED FOR CONSUMPTION
•
PERSONAL TAXES ARE EXCLUDED IN THE COMPUTATION OF DISPOSABLE INCOME.
•
FORMULA:
DI = PI - PT WHERE
•
:
DI
=
DISPOSABLE INCOME
PI
=
PERSONAL INCOME
PT
=
PERSONAL TAXES
TP
=
CONSUMPTION IS: C = PI – PT – PS
WHERE: PS IS PERSONAL SAVINGS
LESSON 4 THE DISTRIBUTION OF NATIONAL INCOME
MEANING OF INCOME DISTRIBUTION INCOME DISTRIBUTION
•
THE ALLOCATION OF INCOME AMONG THE OWNERS OF THE FACTORS OF PRODUCTION
•
IT IS THROUGH THIS THAT INCOMES ARE APPORTIONED/ALLOCATED TO THE DIFFERENT MEMBERS OF SOCIETY.
•
ONE MAY RECEIVE MORE WHILE OTHERS RECEIVE LESS.
•
MOST OF THE PRODUCTIVE RESOURCES BELONG TO THE VERY FEW INDIVIDUALS, WHILE WORKERS AND EMPLOYEES ARE GIVEN LOW WAGES.
•
THE OTHER SOURCES OF INCOME LIKE RENTS, INTERESTS, AND PROFITS ARE MUCH HIGHER.
•
SUCH A DISMAL ECONOMIC CONDITION OF THE POOR HAS BEEN A PRODUCT OF OUR EXISTING SOCIO-ECONOMIC STRUCTURE.
MEANING OF INCOME DISTRIBUTION TYPES OF INCOME DISTRIBUTION
1.
PERSONAL DISTRIBUTION – DEALS WITH THE ALLOCATION OF INCOME AMONG PERSONS OR HOUSEHOLDS AND THE TOTAL INCOME THEY RECEIVE • THE DEGREE OF INCOME INEQUALITY AMONG HOUSEHOLDS OR FAMILIES IS SHOWN BY THE LORENZ CURVE.
% OF INCOME
• THE VERTICAL AXIX REPRESENTS “PERCENT OF INCOME” WHILE THE HORIZONTAL AXIS IS THE “PERCENT OF FAMILIES. • THE DIAGONAL LINE SHOWS PERFECT INCOME EQUALITY AMONG FAMILIES. • THE FURTHER THE LORENZ CURVE FROM THE LINE OF EQUALITY, THE GREATER IS INCOME INEQUALITY AMONG FAMILIES
LORENZ CURVE
% OF FAMILIES
MEANING OF INCOME DISTRIBUTION TYPES OF INCOME DISTRIBUTION
2.
FUNCTIONAL DISTRIBUTION – THE ALLOCATION OF INCOME AMONG THE FACTORS OF PRODUCTION, NAMELY, LAND, LABOR, CAPITAL AND ENTREPRENEUR.
CAUSE OF INCOME INEQUALITY 1. INTELLIGENCE AND TALENTS 2. EDUCATION AND TRAINING 3. UNPLEASANT ASND RISKY JOBS 4. OWNERSHIP OF PRODUCTIVE FACTORS
LESSON 1 MEASUREMENT OF NATIONAL INCOME
OVERVIEW • THE INCOME OF THE NATION IS MEASURED BY THE TOTAL EARNINGS OF THE FACTORS OF PRODUCTION OWNED BY ITS CITIZENS OR BY THE TOTAL MARKET VALUE OF ALL FINAL GOODS AND SERVICES PRODUCED BY THE CITIZENS. • SUCH EARNINGS OR MARKET VALUE OF FINAL GOODS AND SERVICES ARE ESTIMATED ON A YEARLY BASIS. SUCH MEASUREMENTS REFLECT THE PERFORMANCE OF THE ECONOMY.
THE GROSS NATIONAL PRODUCT • The Gross National Product or GNP refers to the market value of all the final products produced by the resources of the economy during na specified period of time. • GNP reflects the value of the products flowing in the circular flow, the production of which entails the use of the economy’s economic resources.
THREE MAJOR TYPES OF GOODS IN THE GNP 1. Goods and services which enter into the channel of trade and commerce; 2. Products which are produced and consumed by the producers; and
3. Imputed value in rentals. Note: 1. GNP excludes second-hand items as they merely represent a change in ownership of a good produced earlier, unless there is capital gain. 2. Final product is merely an attempt to avoid double counting – a problems that makes the determination of the gross national product very difficult.
THREE MAJOR TYPES OF GOODS IN THE GNP 1. Goods and services which enter into the channel of trade and commerce; 2. Products which are produced and consumed by the producers; and
3. Imputed value in rentals. Note: 1. GNP excludes second-hand items as they merely represent a change in ownership of a good produced earlier, unless there is capital gain. 2. Final product is merely an attempt to avoid double counting – a problems that makes the determination of the gross national product very difficult.
LIMITATION OF GNP 1. The national income in less developed countries is understated insofar as many products which have been produced and consumed are excluded (small-scale industries whose products are only used for family consumption, various trade transactions, some of which are not place in the market).
2. Inadequacy and inaccuracy of statistics. 3. GNP only measures the number of goods and services but not the quality of goods and services. 4. GNP does not reflect the distribution of income among members of society. Income of the rich and poor are combined to come up with an average per capita income (PCI). 5. Per Capital Income (PCI) is income per head.
LIMITATION OF GNP 5. Per Capital Income (PCI) is income per head. The formula is: PCI = National Income Population
SO, IF THE NATIONAL INCOME IS PHP 950,000,000,000.00 AND THE POPULATION IS 100,000,000, PCI IS PHP 9,500.00.
THE GROSS DOMESTIC PRODUCT (GDP) • The Gross Domestic Product (GDP) is comprised of final goods and services produced with national boundaries. • The GDP is a tool that measures the value of all locallyproduced goods and services at market price.
• GDP does not include the earnings of Filipino factors of production abroad as they are part of GNP.
THE DIFFERENCE BETWEEN GDP AND GNP • The difference between GDP and GNP is called net factor income from abroad (NFIA). • It regards earnings of banking system as inflows and repatriation to foreign factors of production as outflows.
• NFIA is added to GDP to arrive at GNP. • A simple formula is: GNP = GDP + NET FACTOR INCOME FROM ABROAD.
THE DIFFERENCE BETWEEN GDP AND GNP
MEASURING THE GNP • The GNP can be measured in two (2) ways: 1. CURRENT GNP 2. REAL GNP CURRENT GNP = PcQc Where: Pc = Current Price Qc = Current Volume of Goods and Services
• At current price, GNP could not be exactly determined. An increase in prices of goods and services will automatically increase the GNP even if there is no actual increase in the volume of production.
MEASURING THE GNP • If GNP is really made to measure the market value of total production, the effect of price changes must be eliminated so as to show GNP values which reflect only changes in quantity. REAL GNP • The measurement using a base or constant price. • This means expressing GNP for several years at prices of a single year. • In real GNP, the effect of price changes is eliminated so as to show GNP values which reflect only changes in quantity. • Real GNP is computed from current GNP using a price coefficient known as the PRICE INDEX or GNP deflator. • A price index is needed to divided the GNP current prizes in order to reexpress it at constant peso terms. • The price index must reflect well the average increase of prices of all goods and services using the price of a given year as the point of comparison.
MEASURING THE GNP REAL GNP • Formula: REAL GNP = CURRENT GNP PURE NO. INDEX WHERE: PURE NO. INDEX = PRICE OF CURRENT YEAR BASE YEAR PRICE
MEASURING THE GNP REAL GNP PURE NO. INDEX = PRICE OF CURRENT YEAR BASE YEAR PRICE
YEAR
A CURRENT PRICE / CAVAN OF RICE
B BASE PRICE (1986 PRICE)
C PURE NO. INDEX (A ÷ B)
PRICE INDEX (MULTIPLY C BY 100)
1986
350
350
1.0
100
1987
425
350
1.21
121.42
1988
475
350
1.36
135.71
MEASURING THE GNP REAL GNP REAL GNP = CURRENT GNP PURE NO. INDEX
YEAR
A VALUE OF CURRENT PRICES
B PURE NO. INDEX
VALUE AT CONSTANT PRICES (A ÷B)
1986
250,000
1.0
250,000.00
1987
458,000
1.21
378,512..40
1988
625,000
1.36
459,558.82
WITH THE REAL GNP, WE ARE NOW SURE THAT THE INCREASE IN GNP IS DUE TO THE ACTUAL INCREASE IN THE VOLUME OF PRODUCTION, AND NOT DUE TO THE INCREASE IN PRICES OF GOODS AND SERVICES.
LESSON 2 OTHER APPROACHES OF MEASURING GNP
EXPENDITURE APPROACH 1. GNP IS MEASURED IN TERMS OF TOTAL SALES OF THE ECONOMY, WHICH ARE BASICALLY , THE TOTAL EXPENDITURES OF OUR ECONOMY. 2. GNP IS THE SUMMATION OF THE CONSUMPTION, INVESTMENT, GOVERNMENT EXPENDITURES AND EXPORT MINUS IMPORTS OR NET EXPORTS.
GNP = C + I + G + (X – M) Where: C
=
I G X–M
= = =
Consumption spending by household /Private Consumption Expenditures Investment Government Spending Exports minus Imports (Net Exports)
MEASURING THE GNP REAL GNP GNP AND GDP BY EXPENDITURES SHARES (@ CURRENT AND CONSTANT PRICES) Expenditure Type
AT CURRENT PRICES 2009
2010
GROWTH RATE
GROSS DOMESTIC PRODUCT
7,678,917
8,513,037
10.9
NET FACTOR INCOME FROM REST OF THE WORLD
1,131,067
1,237,157
GROSS NATIONAL PRODUCT
8,809,984
9,750,193
1. PERSONAL CONSUMPTION EXPENDITURE 2. GOVERNMENT CONSUMPTION CAPITAL FORMATION EXPORTS LESS: IMPORTS
GROSS NATIONAL INCOME
10.7
MEASURING THE GNP REAL GNP GNP AND GDP BY EXPENDITURE SHARES (@ CURRENT AND CONSTANT PRICES) Expenditure Type
AT CONSTANT PRICES 2009
2010
GROWTH RATE
1,432,115
1,537,152
7.3
222,821
236,198
GROSS NATIONAL PRODUCT
1,654,936
1,773,350
GROSS NATIONAL INCOME
1,718,804
1,857,254
1. PERSONAL CONSUMPTION EXPENDITURE 2. GOVERNMENT CONSUMPTION 3. CAPITAL FORMATION 4. EXPORTS LESS: IMPORTS
GROSS DOMESTIC PRODUCT NET FACTOR INCOME FROM REST OF THE WORLD
7.2
INCOME APPROACH 1.
MAIN COMPONENT: NATIONAL INCOME
2.
NATIONAL INCOME IS THE SUM TOTAL OF ALL FACTOR INCOME OF PERSONS AND HOUSEHOLD (WAGES AND SALARIES, PROFITS AND DIVIDENDS, RENT AND INTEEST) AND GOVERNMENT INCOME DERIVED FROM CAPITAL AND UNDISTRIBUTED CORPORATE INCOME.
3.
NATIONAL INCOME IS INCLUSIVE ALSO OF INDIRECT TAX, A TAX PAID ON THE SALE OF PRODUCT USUALLY SHOULDERED BY THE CONSUMERS AND DEPRECIATION ALLOWANCE WHICH IS A FEE FOR THE PRESENT USE OF MACHINES AND BUILDINGS THAT HAS BEEN INSTALLED IN THE PAST.
GNP = NI + INDIRECT TAXES + DEPRECIATION Where: NI IT D
= = =
NATIONAL INCOME INDIRECT TAXES DEPRECIATION
MEASURING THE GNP REAL GNP GNP AND GDP BY INDUSTRIAL ORIGIN (@ CURRENT PRICES) INDUSTRY / INDUSTRY GROUP
AT CONSTANT PRICES 4TH Q - 2009
4TH Q-2010
GROWTH RATE
2,215,226
2,431,902
9.8
309,698
328,192
2,524,923
2,760,094
1. AGRI./ FISHERY / FORESTRY 2. INDUSTRY SECTOR 3. SERVICE SECTOR GROSS DOMESTIC PRODUCT
NET FACTOR INCOME FROM REST OF THE WORLD GROSS NATIONAL PRODUCT
9.3
THE INDUSTRY-ORIGIN APPROACH 1. THE GNP IS DERIVED BY GETTING THE SUM OF THE GROSS VALUE-ADDED BY ALL SECTORS OF THE ECONOMY. THESE SECTORS ARE: •
AGRICULTURE, FISHERY, FORESTRY
•
INDUSTRY
•
SERVICE
GNP =
SUM OF THE GROSS VALUE-ADDED OF ALL SECTORS + INDIRECT TAX
+ DEPRECIATION
MEASURING THE GNP REAL GNP GNP AND GDP BY INDUSTRIAL ORIGIN (@ CONSTSNT PRICES) INDUSTRY / INDUSTRY GROUP
AT CONSTANT PRICES 4TH Q - 2009
4TH Q-2010
GROWTH RATE
GROSS DOMESTIC PRODUCT
397,736
425,927
7.1
NET FACTOR INCOME FROM REST OF THE WORLD
60,684
62,986
GROSS NATIONAL PRODUCT
458,420
488,913
1. AGRI./ FISHERY / FORESTRY 2. INDUSTRY SECTOR 3. SERVICE SECTOR
6.7
LESSON 3
OTHER CONCEPTS OF NATIONAL INCOME ACCOUNTING
OTHER CONCEPTS OF NATIONAL INCOME ACCOUNTING 1.
2.
NET NATIONAL PRODUCT (NNP)
•
THE TOTAL SALES VALUE OF OUTPUT AFTER DEDUCTING CAPITAL CONSUMPTION OR DEPRECIATION AND INDIRECT TAXES OF NET SUBSIDIES.
•
NNP = DEPRECIATION – INDIRECT TAXES OF NET SUBSIDIES
PERSONAL INCOME (PI)
•
THE INCOME RECEIVED BY THE HOUSEHOLDS
•
PI = NI – CI +D +TP WHERE
:
PI
=
PERSONAL INCOME
NI
=
NATIONAL INCOME
CI
=
CORPORATE INCOME
D
=
DIVIDENDS
TP
=
TRANSFER PAYMENTS
OTHER CONCEPTS OF NATIONAL INCOME ACCOUNTING 2.
PERSONAL INCOME (PI)
•
OTHER ALTERNATIVE OF EXPRESSING PI IS: PI = W + D + E + TP WHERE
:
W
=
WAGES AND SALARIES
D
=
DIVIDENDS
E
=
ENTREPRENEURIAL /PROPERTY INCOME OF PERSONS
TP
=
TRANSFER PAYMENTS
OTHER CONCEPTS OF NATIONAL INCOME ACCOUNTING 2.
PERSONAL DISPOSABLE INCOME (PDI)
•
AN INCOME USED FOR CONSUMPTION
•
PERSONAL TAXES ARE EXCLUDED IN THE COMPUTATION OF DISPOSABLE INCOME.
•
FORMULA:
DI = PI - PT WHERE
•
:
DI
=
DISPOSABLE INCOME
PI
=
PERSONAL INCOME
PT
=
PERSONAL TAXES
TP
=
CONSUMPTION IS: C = PI – PT – PS
WHERE: PS IS PERSONAL SAVINGS
LESSON 4 THE DISTRIBUTION OF NATIONAL INCOME
MEANING OF INCOME DISTRIBUTION INCOME DISTRIBUTION
•
THE ALLOCATION OF INCOME AMONG THE OWNERS OF THE FACTORS OF PRODUCTION
•
IT IS THROUGH THIS THAT INCOMES ARE APPORTIONED/ALLOCATED TO THE DIFFERENT MEMBERS OF SOCIETY.
•
ONE MAY RECEIVE MORE WHILE OTHERS RECEIVE LESS.
•
MOST OF THE PRODUCTIVE RESOURCES BELONG TO THE VERY FEW INDIVIDUALS, WHILE WORKERS AND EMPLOYEES ARE GIVEN LOW WAGES.
•
THE OTHER SOURCES OF INCOME LIKE RENTS, INTERESTS, AND PROFITS ARE MUCH HIGHER.
•
SUCH A DISMAL ECONOMIC CONDITION OF THE POOR HAS BEEN A PRODUCT OF OUR EXISTING SOCIO-ECONOMIC STRUCTURE.
MEANING OF INCOME DISTRIBUTION TYPES OF INCOME DISTRIBUTION
1.
PERSONAL DISTRIBUTION – DEALS WITH THE ALLOCATION OF INCOME AMONG PERSONS OR HOUSEHOLDS AND THE TOTAL INCOME THEY RECEIVE • THE DEGREE OF INCOME INEQUALITY AMONG HOUSEHOLDS OR FAMILIES IS SHOWN BY THE LORENZ CURVE.
% OF INCOME
• THE VERTICAL AXIX REPRESENTS “PERCENT OF INCOME” WHILE THE HORIZONTAL AXIS IS THE “PERCENT OF FAMILIES. • THE DIAGONAL LINE SHOWS PERFECT INCOME EQUALITY AMONG FAMILIES. • THE FURTHER THE LORENZ CURVE FROM THE LINE OF EQUALITY, THE GREATER IS INCOME INEQUALITY AMONG FAMILIES
LORENZ CURVE
% OF FAMILIES
MEANING OF INCOME DISTRIBUTION TYPES OF INCOME DISTRIBUTION
2.
FUNCTIONAL DISTRIBUTION – THE ALLOCATION OF INCOME AMONG THE FACTORS OF PRODUCTION, NAMELY, LAND, LABOR, CAPITAL AND ENTREPRENEUR.
CAUSE OF INCOME INEQUALITY 1. INTELLIGENCE AND TALENTS 2. EDUCATION AND TRAINING 3. UNPLEASANT ASND RISKY JOBS 4. OWNERSHIP OF PRODUCTIVE FACTORS
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