MEASURING

THE NATION’S
ECONOMIC
PERFORMANCE
CHAPTER 12 – PART 1
 OBJECTIVE/S
Explain the significance of
01
economic accounts
LESSON OUTLINE
Market prices as a measure
01 of production
Basic Approaches in
02 Measuring Economic
Performance
The Concept of Value-
03
Added
 The Components of National
04 Product
Personal Consumption
05 Expenditures
Government Expenditures on
06 Goods and Services

07 Capital Formation

08 Net Export
NATIONAL INCOME AND
PRODUCT ACCOUNTING
❑ Measures the production
performance of the economy
 MARKET PRICES
AS A MEASURE OF
PRODUCTION
 MARKET PRICES AS A
MEASURE OF
PRODUCTION
Market price is the amount
a buyer pays for the product he
or she purchases from the
market.
 NATIONAL
PRODUCT
❑The money value of goods
and services the economy
produced in a period of time
– Wonnacott
❑Usually computed on a yearly
basis
Using Market Prices to Compute the
National Product
Product Quantity Price/Unit Market
and Unit Value

Dried fish 200 kilos 80.00 16,000.00

Cloth 50 meters 40.00 2,00.00

Total 18,000.00
 BASIC
APPROACHES IN
MEASURING
ECONOMIC
PERFORMANCE
CLASSIFICATIONS
National Product
Approach

National Income
Approach
 A. Goods and Services

B. Business Revenue

NATIONAL PRODUCT APPROACH

NATIONAL INCOME APPROACH

C. Salaries/ Wages, Rent,

Interest, Profit

D. Land, Labor, Capital,

Entrepreneur
 NATIONAL
INCOME
❑Is the total of all factor
incomes generated from
supplying the economy with
the factors of production
 In the diagram, everything
the households and the firms
earn is spent.
The households spend
their income for personal
consumption, and the firms use
theirs for business expenditures
or investment.
 The total money supply in
the economy is properly
accounted for.
The households and the
firms just take turns using it.
The expenditure of one is
the income of the other.
 It could be assumed that
in a simple and pure market
economy the national product
is equal to the national income.
THE CONCEPT
OF VALUE
ADDED
 In national income and
product accounting, the
market value of each product
is computed once only.
This is to avoid “double
counting” errors.
 DOUBLE
COUNTING
❑Actually means calculating
the market value of the
product more than once
 The concept of value-
added differentiates products
according to intended use.
Based on this
classification, products are
either final or intermediate.
FINAL PRODUCT
❑Is a good or a service
purchased by the ultimate
user
❑It is not intended for resale or
further processing
 INTERMEDIATE
PRODUCT
❑Intended for resale or further
processing
❑A car bought by a taxi
company
 Stage of Value of Cost of Value-
Production Sales Intermediate Added
Products
Cassava 20.00 0 20.00
Flour 50.00 20.00 30.00
Cassava 85.00 50.00 35.00
cake at
wholesale
Cassava 95.00 10.00 10.00
cake at
retail
Total Value 250.00 Gross Value 95.00
of Sales Added
 It must be noted that had
the values of all transactions in
“Value of Sales” column been
added, the total value of sales
would have been 250.00.
This is for a case of a
“double counting.”
 COMPONENTS OF
NATIONAL PRODUCT
❑Also called the expenditure
approach
❑Takes into account the
expenditures incurred by the
four macroeconomic sectors
 COMPONENTS OF
NATIONAL PRODUCT
❑Personal consumption
expenditures (consumers
sector)
❑Government expenditures on
goods and services (public
sector)
 COMPONENTS OF
NATIONAL PRODUCT
❑Capital formation (business
sector)
❑Net exports (foreign sector)
 (1) PERSONAL
CONSUMPTION
EXPENDITURES
❑Refer to household
consumption
❑Biggest component of the
national product of the
Philippine economy
 (1) PERSONAL
CONSUMPTION
EXPENDITURES
Durable goods

Nondurable goods

Services
(A) DURABLE GOODS
❑Include furniture, cars, and
appliances
 (B) NONDURABLE
GOODS
❑Include food, toiletries, and
clothes
 (C) SERVICES

❑Ttelephone, water, and

electricity
 (2) GOVERNMENT
EXPENDITURES ON
GOODS AND SERVICES
❑Biggest single spender in the
economy
❑Spends on goods and
services that benefit the
whole nation
 (2) GOVERNMENT
EXPENDITURES ON
GOODS AND SERVICES
❑It constructs roads and
bridges to facilitate the
movement of the people and
the flow of trade and
commerce
 Government transfer
payments, such as subsidized
hospitalization and financial
assistance for victims of
calamities, are not included in
the national product accounts.
The beneficiaries receive
them from the government for
free.
 (3) CAPITAL
FORMATION
❑Commonly known as
investment
❑The aggregate expenditures
on fixed capital and on
changes in stocks
 Savings are the source of
funds for investments. Banks
and other financial institution
lend the money that the
people and the businesses
saved to investors.
Thus, savings are deemed
fully utilized if gross domestic
investment is equal to gross
domestic savings.
 (4) NET EXPORT
❑The difference of the total
value of merchandise exports
and the total value of the
merchandise imports
❑(𝑒𝑥𝑝𝑜𝑟𝑡 – 𝑖𝑚𝑝𝑜𝑟𝑡) 𝑜𝑟 (𝑋 − 𝑀)
❑Invariably called balance of
trade
 Exports are included in the
national product accounts
because they represent what
have been produced in the
economy during the
accounting year.
 Imports are deducted
from the national product
accounts because they
represent purchases of goods
produced abroad.
The money spent for
imports goes out of the country
and does not contribute to
local production.
 It follows that if the
country’s exports exceeded its
imports, its net export is positive.
If its imports exceeded its
exports, its net export is
negative.
A positive net export
shores up the national product,
while a negative net export
reduces the national product.
LESSON
RECAP
You may now ask
questions.
Thank you for listening!
-Miss LoveG