NATIONAL INCOME STATISTICS
DANIEL JNR SOROGO
Lesson Objectives
learner will be able to:
Define and explain the meaning of National Income
Explain the purpose of National Income Statistics
Explain the difference between Gross Domestic Product (GDP)
and Gross National Product (GNP)
Analyze the three methods of measuring GDP
Explain how measures of national income are adjusted from
market prices to basic prices (factor cost)
Explain how measures of national income are adjusted from
Gross values to Net values.
National Income & National Income Statistics
National Income refers to the total value of a country’s output
measured over a given period of time (usually 1 year).
National Income can also be said to be the total amount of income
accruing to a country from economic activities over a year. It
includes payments made to all resources either in the form of
wages, interest, rent, and profits.
The progress of a country can be determined by the growth of the
national income of the country.
National Income Statistics is a term for the various
measurements of a country’s economic activity in terms of its
output, income and expenditure (the circular flow of income).
This measurement is usually done to assess the economic health
of the country.
Importance of National Income Statistics
Provides information to be used for making economic policies,
budgeting, and planning.
Provides information on the contribution of each sector of the
economy to the national income.
Provides a breakdown on consumer expenditure and government
expenditure.
Provides information that is used to measure the standard of
living in the country.
Provide statistics for measuring the economic growth of the
country.
Provide information used for comparing economic performance
of the country across two or more years.
Gross Domestic Product (GDP)
Gross Domestic Product (GDP) is the total monetary or market
value of all the finished goods and services produced within a
country’s borders in a specific time period.
For instance the market value of all good and services produced
within Ghana in 2019 is the GDP of Ghana in 2019.
GDP functions as a comprehensive scorecard of a given country’s
economic health.
GDP can be calculated in three ways: Output approach, Income
approach and Expenditure approach.
Though it has limitations, GDP is a key tool to guide
policymakers, investors, and businesses in strategic decision-
making.
Gross National Product (GNP)
GNI measures the output of a country's citizens regardless of the
location of the actual underlying economic activity.
Gross National Product (GNP) is an estimate of the total value of
all the final products and services turned out in a given period by
the means of production owned by a country's citizens.
To obtain GNP, factor income of citizens from abroad are added
to GDP and factor income belonging to foreigners is deducted
from GDP.
𝐺𝑁𝑃 = 𝐺𝐷𝑃 + (𝑟𝑒𝑐𝑒𝑖𝑝𝑡𝑠 𝑓𝑟𝑜𝑚 𝑎𝑏𝑟𝑜𝑎𝑑 − 𝑝𝑎𝑦𝑚𝑒𝑛𝑡 𝑎𝑏𝑟𝑜𝑎𝑑)
The difference between receipts of factor income from abroad and
payment of factor income to abroad is call net property income
from abroad OR net factor income from abroad.
Comparison of GDP and GNP of Countries
A lot of countries have their GDP very similar to their GNP. In
other countries however, there is a remarkable difference between
GDP and GNP. This difference can be explained by examining
net property income from abroad.
Where a country’s GDP is far greater than GNP, it implies many
of the country’s firms are Multinational Companies (MNCs).
This is because MNCs and foreign workers make an important
contribution to the output of these countries.
Other countries have a higher GNP than GDP. This is so because
such countries receive a significant inflow of income from their
citizens and firms working abroad than the payments they make
to abroad.
The Output Approach of GDP
The output approach of measuring GDP is adding up the output
produced by the various sectors of the economy. These include
output from the primary sector, the secondary sector and the
tertiary sector.
Examples are agriculture, mining, construction, manufacturing,
distribution, banking, and hotels among others.
It is imperative to avoid double counting when using the output
approach.
To avoid double counting, output is measured either by totaling
the value of the final goods and services produced or by adding
the value added at each stage of production.
The Income Approach of GDP
The income approach calculates GDP by adding up the incomes
earned by all the factors of production in an economy, including
the wages paid to labor, the rent earned by land, the return on
capital in the form of interest, and corporate profits to
entrepreneurs.
In using the income method it is important to include only
payments received in return for providing a good or service.
Transfer payments, which are transfers of income from taxpayers
to groups of individuals for welfare payments and to firms in the
form of subsidies, are not included.
The Expenditure Approach of GDP
The expenditure approach, also known as the spending approach,
calculates spending by the different groups that participate in the
economy. They include households consumption (C), government
expenditure (G), businesses investment (I) and trading with other
nations (Exports and Imports).
As with the income method, transfer payments are not included.
This is because government spending on welfare payments does
not represent spending on goods and services.
The formula below is used to calculate GDP using the
expenditure approach
𝐺𝐷𝑃 = 𝐶 + 𝐺 + 𝐼 + 𝑋 − 𝑀
Market Price and Basic Price (Factor Cost)
Market prices are the prices charged to consumers. They include
any taxes on products (indirect taxes) that have been imposed and
any subsidies that have been given to producers.
Basic price (factor cost) on the other hand is the price which
would be charged without government intervention and which
equal the income paid to the factors of production for making the
output.
The basic prices is calculated by deducting indirect taxes and
adding subsidies to the market price of the product. That is:
𝐺𝐷𝑃𝑓𝑐/𝑏𝑝 = 𝐺𝐷𝑃𝑚𝑝 − 𝑛𝑒𝑡 𝑖𝑛𝑑𝑖𝑟𝑒𝑐𝑡 𝑡𝑎𝑥
NB 𝑁𝑒𝑡 𝑖𝑛𝑑𝑖𝑟𝑒𝑐𝑡 𝑡𝑎𝑥 = 𝑖𝑛𝑑𝑖𝑟𝑒𝑐𝑡 𝑡𝑎𝑥 − 𝑠𝑢𝑏𝑠𝑖𝑑𝑖𝑒𝑠
Net National Product (NNP) from GNP
GNP include gross investment, that is total investment. Gross
investment includes the output of capital goods both used to
replace existing capital goods that have worn out or become out
of date due to advances in technology and capital goods required
to expand capacity.
NNP is the total value of finished goods and services produced by
a country's citizens overseas and domestically, minus depreciation
or capital consumption allowance.
𝑁𝑁𝑃 = 𝐺𝑁𝑃 − 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 𝑐𝑜𝑚𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛
Depreciation is the monetary value of an asset that decreases
over time due to use, wear and tear or obsolescence.
END OF LESSON
THANK YOU.
