Gross National Product

Gross Domestic Product

National Income is a measure of the moneyvalue of the total flow of goods andservices produced in an economy over aspecified period of time. It is used as abasis in determining the capabilities of aneconomy.

National income consists of the following:

Wages or Salary- those generated by labor;

Interest- those generated by lenders of funds;

Rent- those generated by owners of real estate;

Profit- those generated by entrepreneurs;

Net Factor- income from abroad

A. Gross National Product

Meaning:

Gross National Product (GNP) is ameasure of market value of the final goodsand services produced by nationals orcitizens of a country in a particular timeperiod. This includes production within andoutside the country under consideration.

A. Gross National Product

Purpose:

GNP reflects the value of the economy’sproduction since it also includes the valueof products from the low stages ofproduction.

GNP figures show the structure ofproduction according to end use and factorcontribution.

A. Gross National Product

Exclusions from the GNP:

The products not produced by theresources of the economy as imports.

The products that can no longer be usedfor higher stages of production and,therefore, have reached the highest levelof transformation using the economy’sresources.

The time and t6he aforementioned thosenot produced by the economy within theperiod of time accounted.

.

B. Gross Domestic Product

Meaning:

Gross Domestic Product (GDP) is a

measure of the total flow and services

produced by the economy over a particular

time period. The factors of production must be

located in the domestic economy regardless of

who owns them. The owners of the factors of

production consist of citizens of the local

economy and those foreign countries.

Gross Domestic Product (GDP) Gross National Product (GNP)

Production withinthe Philippines byPhilippine nationals

Production withinthe Philippines byForeign nationals

Production within the Philippines by Philippine nationals

Production outside the Philippines by Philippine nationals

Private or Personal Consumption Expenditures -the spending by households on the following types of goods:

a) Durable Consumer Goods ex. appliances, furniture, etc.

b) Nondurable Consumer Goods ex. food, newspaper, ballpen, etc.

c) Services ex. those provided by teachers, architects,

electrician, etc.

Gross Domestic Investment-expenditures for newly producedcapital goods like machinery,equipment, tools, buildings andadditional inventors-do not include the transfers of paperassets and secondhand tangible assetsbecause these do not constituteinvestment.

Depreciation- reduction in the valueof an asset through wear and tear. It ispartly consists of the consumption ofcapital goods previously produced andshould not be reflected in the

Net National Product (NNP)- refers tothe GNP less the part of the outputneeded to replace the capital goodsworn out in producing the output andthe fine-tuned value for a moreaccurate accounting of the country’sfinal products.

To calculate for NNP:

NNP=GNP-Depreciation

Indirect Taxes- taxes which firmstreat as costs of producing a productor service and pass on (full or partial)to buyers by charging them highprices.

Ex. sales, excise and business propertytaxes, license fees and tariffs.

Subsidies- payment of funds, goodsor services by a government, businessor household for which it receives nogood or service in return.

Personal Income- earned by persons or households.

National Income (NI)- income earned by the factor owners and equals to NNP less indirect taxes.

To calculate for NI:

NI=Personal Income (PY)+Corporate

Income (CY)+ Government Income (GY)

Expenditure Approach- a way ofestimating national income which involvesthe calculation of the sum of allexpenditures on final goods.

To calculate for the GNP using the Expenditure

Approach:

GNP=C+I+G+(X-M)

Where: GNP= Gross National Product

C= Consumption (private or

personal consumption

expenditure)

I= Investment (gross domestic

capital formation)

G= Government expenditure

X= Exports

M= Imports

Income Approach

Current production is madepossible through the use of economicresources of land, labor, capital andentrepreneurship. The owners of theseresources receive earnings in the formof rent, wages and salaries, interestsand dividends, and profit. When thetotal amount of earnings of the ownersis aggregated into a single amount, theobjective of determining the nationalincome is achieved.

To calculate for the GNP using the Income Approach:

GNP=NI+(IT-S)+DA

Where: GNP= Gross National ProductNI= National IncomeIT= Indirect TaxS= SubsidiesDA= Depreciation Allowance

(Capital Consumption Allowance)

Current GNP is a value using currentprices, whereas Real GNP uses a base orconstant prices.

Real GNP is computed from Current GNPusing a price coefficient since directcomputation poses practical problems andunwieldiness.

The difference is illustrated by the

following equations:

Current GNP= PcQc

Real GNP= PbQc

Where: Pc= Current Price

Pb= Base Price

Qc= Current Volume of Goods

and Services

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