Measuring National Income Flashcards
What is national income
The monetary value of the flow of output of goods and services produced in an economy over a period of time
What is measuring the level and rate of growth of national income important for keeping track of
The rate of economic growth
Changes to living standards
Changes to the distribution of income between groups within the population
What is GDP
The total value of output produced in a given time period
What does GDP include
The output of foreign owned businesses that are located in a nation following FDI
What are the three ways of calculating GDP
- expenditure method (AD)
- income method (adding together factor incomes)
- output (value added)
What is the income method of calculating GDP
Assigning income + profits + rent income
What is excluded from the calculation of the income method for GDP
- transfer payments (e.g. benefits)
- private transfers of money from one person to another
- income not registered with the tax authorities
- incomes from unrecorded methods e.g. subsistence farming
What are the three main wealth-generating sectors in an economy
Manufacturing & construction
Primary
Service sector industries
What is value added
The increase in the value of goods or services as a result of the production process
How to calculate value added
Value of production - value of intermediate goods
What does the majority of UK GDP come from
Service industries such as banking and finance, tourism, retailing, education and health
UK service sector 2012 % of economic output
79%
How many jobs were in manufacturing in the U.K. 2013
2.6 million
Main service sector industries in the U.K.
Hotels and restaurants
Transport
Business services & finance
What is GNI
The final value of incomes flowing to U.K. owned factors of production whether they are located in the U.K. or overseas
What is gross domestic income concerned only with
The incomes generated within the geographical boundaries of the country
Calculation of GNI
GDP + Net property income from abroad
What are remittances
Transfers of money across national boundaries by migrant workers
Developing countries and remittances
Money coming in from remittances is an important source of income to their GNI
What is nominal income
Income at current prices with no adjustment for inflation
What is real GDP
It measures the volume of output (an increase in real output means that AS has risen faster than the rate of inflation and therefore the economy is experiencing positive growth
What do PPP
It measures how many units of one country’s currency are needed to buy exactly the same basket of goods and services as can be bought with a given amount of another country’s currency
