Measuring Economic Activities: National Income Accounts
The national income account is a framework in measuring current economic activities (during a period of time)
Real economic activities can be measured in terms of:
1. The amount of output produced, excluding output used up in the intermediate stage of production,
Production Approach. (Intermediate good vs. final goods) (Intermediate good example: apples to make
apple juice, apple sold to consumers are not)
2. The incomes received by the producers of output, Income Approach.
3. The amount of spending (expenditure) by the “ultimate purchasers” of output, Expenditure Approach.
The fundamental identity of national income accounting:
Total production = Total income = Total expenditure
Gross Domestic Product (GDP)
It is the broadest measure of aggregate economic activities that can be measured in three approaches:
1. The Product Approach
GDP is the market value of final goods and services newly produced within a nation during a fixed period
Intermediate goods – are used in the process of production
Capital Goods – are goods produced (that rule out natural resources such as land….) and are used in the
production of other goods. However unlike intermediate goods, capital goods have to be included in
Inventories – Increase in inventories represents production that is not used up (or sold) during the year.
Increase in inventories is treated as a final good and thus part of GDP.
Value Added – Value of output minus value of intermediate inputs.
Gross National Product (GNP)
It is the market value of final goods and services produced by national factors or production during the year.
Factors of Production
GNP = GDP + NFP
Net Factor Payment = Inflow – Outflow Question
In 2000, Canadian GDP was $1,056 billion and Canadian GNP was $ 1,031 billion
a) Obtain NFP
b) Interpret the NFP figure
a)GNP = GDP + NFP
1031 = 1056 + NFP
NFP = -25 billion
b)NFP – Payments to domestic factors of production by the rest of the world minus payments to foreign factors of
production by domestic economy.
That is NFP = inflow – outflow of payments for factors of production. Thus outflow has been $25 billion more than
inflow due t