9.1.3—National income gaps

National income is the income generated by production in an economy. In principle, the output, expenditure and income approaches give the same total because one person’s spending is another’s income and output is the corresponding product.

In practice, inventories, informal activity, timing, valuation, depreciation and statistical error create gaps. GDP measures domestic production; GNI adjusts for net factor income from abroad, so the distinction matters for economies with large cross-border income flows.

A firm’s sale is expenditure for the buyer, revenue and factor income for workers and owners, and part of measured output. If stock is produced but unsold, inventory investment prevents the output from disappearing from the expenditure measure.

The accounting identity does not mean every household’s income equals its consumption, and measured national income is not a complete welfare index.