National Income and Its Measurement
National income tests the measurement of output, income and expenditure, the circular flow, real versus nominal values and the limitations of GDP. Questions often require calculation of GDP, GNP and per capita income and an explanation of why GDP is not the same as welfare.
Definitions and methods
Gross domestic product (GDP) is the market value of final goods and services produced within a country in a year. GNP = GDP + net factor income from abroad. NNP = GNP − depreciation. GDP can be measured by the output (value-added) method, the income method or the expenditure method. To avoid double counting, count final goods or value added, not intermediate sales.
Circular flow
Households supply factors and receive incomes; they spend on goods and services. Firms produce and pay incomes. Injections are investment, government spending and exports; leakages are saving, taxes and imports. Equilibrium national income occurs where injections equal leakages.
Real and nominal values
Nominal GDP uses current prices; real GDP uses constant prices and shows changes in output. The GDP deflator = nominal GDP ÷ real GDP × 100. Per capita GDP = GDP ÷ population. Comparisons over time need real values; comparisons between countries often use purchasing power.
Worked example
Using expenditure data in billions of CFA: C = 5,000, I = 1,200, G = 1,800, X = 900, M = 1,100. GDP = C + I + G + (X − M) = 5,000 + 1,200 + 1,800 − 200 = 7,800. If net factor income from abroad is −200, GNP = 7,600. With depreciation of 600, NNP = 7,000. For a population of 25 million, NNP per head = 7,000 billion ÷ 25 million = 280,000 CFA.
Traps that cost marks
Do not include transfer payments, second-hand sales or intermediate goods in GDP; do not confuse GDP with GNP; and do not compare nominal GDP across years without adjusting for inflation. GDP also omits subsistence and informal output, home production, pollution and inequality, which matters in Cameroon's large informal economy.