1. Introduction

There are several ways to calculate national income. The most commonly methods used are product, income and expenditure approach.

Product Approach

The product method is also called the output method using Gross National Product or GNP. These output for example are mineral, forestry and agricultural outputs. However only the final goods are considered in the national income.

Fundamentally, GNP is the total value of all final goods and services. The goods and services have to be produced within the border of the country in a particular year, plus income earned by its citizens. Which include income of those located abroad regardless of their location.

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The data used to assess GNP include the manufacturing of tangible goods for example automotive, machinery and agricultural product and the intangible services for example education and healthcare. Note that GNP does not include the services used to produce manufactured goods because their value is included in the price of the finished product. However, GNP does include the depreciation and the indirect business taxes for example sales tax.

The formula for GNP is:

Gross National Product = Consumption + Government Expenditures + Investments + Exports +

Foreign Production by Foreign Companies – Domestic Production by

Foreign Companies

The difference between GNP and GDP (Gross Domestic Product) is that GNP includes the value of products made by the country’s citizens and companies from overseas. GDP only accounts for products made within a country’s borders.

Income Approach

The income approach by using the Gross National Income or GNI is the sum of a nation’s gross domestic product (GDP) plus net income received from overseas. Gross national income (GNI) is defined as the sum of value added by all producers who are residents in a nation, plus any product taxes (minus subsidies) but do not include in the output production.

Expenditure Approach

The expenditures approach (expenditure = Y), the product approach is the Gross Domestic Product or GDP. Gross Domestic Product or also called GDP is the market value of all final goods and services produced within a country in a given period of time (Mankiw, 2013).

GDP is one of the primarily indicators used to measure the well-being of a country’s economic condition.

National Output = National Expenditure (Aggregate Demand) = National Income

The Expenditure Method – aggregate demand (AD)