National Income
Senior 5 · Economics
National Income
Lesson 1 of 5
45 min
On 17 March 2026 the National Institute of Statistics of Rwanda (NISR) published the country's accounts for 2025. One table added up what every sector produced: farms, mines, factories, builders, shops, banks, schools. Another added up what every buyer spent: households, government, investors and foreign buyers. A third set of figures tracked the incomes these activities paid. All three arrive at the same total, Frw 23,387 billion. This lesson explains what that number is, the related totals economists build from it, and why the three methods must agree.
Definition
National income: the total money value of all final goods and services produced by a country's resources in a period, usually a year. Because every franc spent on output becomes someone's income, it can be measured as total output, total income or total expenditure.
Gross domestic product (GDP): the market value of all final goods and services produced within a country's borders in a year, by residents or foreigners.
Gross national product (GNP), now usually called gross national income (GNI): the value of output produced by a country's residents, at home or abroad. It equals GDP plus net factor income from abroad.
| Concept | How it is obtained |
|---|---|
| Net factor income from abroad (NFIA) | Wages, interest, profits and dividends earned by residents abroad, minus those paid to foreigners from production in the country |
| GNI (GNP) | |
| Net national product (NNP) | (capital consumption: the wear and tear of machines and buildings) |
| At market prices and at factor cost | Market prices include indirect taxes and exclude subsidies. |
| National income (NI) | NNP at factor cost: the income earned by the factors of production |
| Personal income | NI − undistributed company profits − corporation tax − employers' social security contributions + transfer payments (pensions, grants) |
| Disposable income | Personal income − direct taxes on persons (such as PAYE income tax): what households can spend or save |
| Per capita income | A national total divided by the population |
All of these can be nominal (valued at the year's own prices) or real (valued at the prices of a base year, so that only changes in quantities show). Senior 6 studies how real figures are calculated.
Worked example 1: Rwanda's GDP and GNI in 2025
NISR reports, for 2025 at current prices: GDP Frw 23,387 billion; net factor income from abroad −Frw 516 billion; population 14.2 million.
(NISR prints 22,872 because its components are rounded.) NFIA is negative: foreign owners of firms, mines and loans in Rwanda earned more here, as profits and interest, than Rwandans earned abroad. So Rwanda's GNI is smaller than its GDP.
Compare NISR's GDP per head of Frw 1,652,000 (about US$1,156). Since , the income of Rwanda's residents is about 2% smaller than the output produced in Rwanda.
Worked example 2: from GNP to disposable income (illustrative figures, Frw billion)
GNP at market prices 10,000; depreciation 800; indirect taxes 1,100; subsidies 100; undistributed profits and corporation tax 600; transfer payments 400; direct taxes on persons 500.
Add up the value of output of every industry. The trap is double counting: the cherries a farmer sells to a washing station are not a final product; they are an input that reappears inside the price of parchment, green coffee and roasted coffee. To count each good once, add only the value added at each stage, or only the value of final goods.
NISR groups value added into three broad activities and then adds product taxes less subsidies to reach GDP at market prices:
Definition
Intermediate goods: goods and services used up in producing other goods, such as cherries sold to a washing station or fuel used by a lorry company. Final goods: goods bought by their final user (households, government, investors or foreign buyers) and not resold in another form.
Add up the incomes earned from producing the year's output: wages and salaries (compensation of employees), rent, interest, and profits (the operating surplus of firms and the mixed income of the self-employed, such as farmers and traders). This gives GDP at factor cost; adding indirect taxes and subtracting subsidies gives GDP at market prices.
Leave out: transfer payments (pensions, scholarships, relief payments, gifts), which are not payments for current production; income from selling second-hand goods or shares, which only changes the owner of existing assets; and most illegal activity, which goes unrecorded.
Add up spending on final goods and services produced in the country:
where C is household consumption, I is investment (gross capital formation, including changes in stocks), G is government consumption, X is exports and M is imports. Imports are subtracted because they are included in C, I and G but were produced abroad.
Important
Why the three methods agree. Every franc spent on a final good is received by its sellers and paid out as wages, rent, interest or profit; and the value of what is sold is the sum of the values added along the chain. So output = income = expenditure, by definition. In practice the three estimates differ because of gaps in the data, and statisticians add a "statistical discrepancy" or adjustment line to reconcile them.
Worked example 3: checking Rwanda's expenditure total
NISR's 2025 figures (Frw billion): C = 15,057; G = 3,521; I = 7,981; X = 5,041; M = 8,213.
Shares: household consumption ; investment ; net exports . Rwanda spends more than it produces; the gap is covered by imports financed from abroad.
Warning
Four items students wrongly add to GDP. (1) Intermediate goods, alongside the final goods that contain them (double counting). (2) Transfer payments such as pensions or bursaries. (3) Second-hand sales (a used car sold in 2025 was counted in the year it was made); only the dealer's commission is new output. (4) Purchases of shares or land, which are transfers of ownership, not production.
Econbusters, "How to Calculate GDP: Expenditure, Income and Value-Added Approaches" (about 10 minutes, 2025). Note each item that is left out of GDP, and compare the list with the warning box above.
Practice
Sources and credits
Written by Ganzaa: the text, the three charts, the tables, the worked examples and the practice items. The coffee and tea chains and worked example 2 are illustrative.
