3.1.1—National income accounting

National income accounting measures production, income and expenditure; output, income and spending are linked views of the circular flow.

Definitions handle imports, inventories and depreciation to avoid double counting.

State the approach and period, then exclude intermediate goods.

Expenditure GDP is C+I+G+(X−M); imports are subtracted because they were not produced domestically.

An account total is a convention, not a welfare score.

In the circular flow, firms produce output, households supply factors of production and receive income, and expenditure purchases that output; this is why total output = total factor income = total expenditure for the same period. Saving, taxes and imports are leakages from the core flow, while investment, government spending and exports are injections. A labelled diagram should show households and firms plus these flows; do not add the three approaches as if they measured separate activity.