Factors of Production

Factor Payments

household Firm

Consumption Expenditures

Goods and Services

National Income
- is the sum total of all the payments of production in
one year or the total payments received by citizens in one
year.
- the values can be nominal or real.
a. nominal value – the value at present or current
price (base on the value of peso)
b. real value – the value in terms of the number of
goods and services produces.
Factors that cause National Income to change

1. Population
2. Savings
3. Investment
4. Consumption
Gross National Product (GNP)
- it is the total market value of all final goods
and services produced by citizens in one year.
- income of the citizens earned from abroad are
included and income of foreign investors are
excluded.
Per Capita Income (PCI)
- is also known as income per head.
- it is derived by dividing national income to
total population.
Gross Domestic Product (GDP)
- it is the total market value of all final goods and
services produced within the territories of a country
in a year.
- income derived from investment or wealth in
foreign countries are included.
- it is usually bigger than GNP if the country’s
economy is dominated by foreigners.
Money GNP - is the value of GNP at or current
price or market price.
Real GNP – is the value of GNP in terms of the number
of goods and services.
Final Goods and Services – these are those which are
sold for the last time and are not for further
processing or manufacturing.
 wages
+rents
+interests
+profits
= National Income
+Indirect taxes less subsidies
+depreciation
= GNP
Depreciation – is an allowance for capital goods
which have been consumed in the process of
production.
Depreciation
= cost – scrap value
estimated life of the asset

Indirect business taxes - a tax imposed by government

on products sold by businessmen.
ex. general sales tax
business property taxes
customs duties
license fees
 Household consumption expenditure
+Government purchases of goods & services
+Gross domestic investment of business firms
+ net export
= GNP
-Indirect business taxes
= National Income
1. It does not show the allocation of goods and services
among the members of society.
2. GNP accounting in less develop countries is understated.
3. The evils of economic growth are not reflected in the
GNP.
4. GNP only measures the number of goods and services but
not the quality.
5. Incomes of products from illegal sources are not reflected
in theGNP.