National Income Flashcards
What is the national income?
The national income is the total value of goods and services produced and sold by the resources of a country in one year.
How do we calculate national income?
Income approach = W + R (rent) + I + PR (profits)
Expenditure approach = C + I + G + (X-M)
Output approach= summing value of sales of goods and subtracting purchases of intermediate goods to produce goods sold
Problems when calculating national income?
- When declaring income, not everyone declares their true income. To evade tax. So the registered figure is usually lower than the actual.
- DIY jobs aren’t registered as people do not consider tasks carried out for own benefit as output. But the output is there it is just unrecorded
- Some primary producers often don’t have proper accounting syste,s, so their record of output isn’t always accurate.
- Double counting takes place when a producer fails to deduct the value of his inputs from his output. If this were done correctly the true value added can be measured
Problems when comparing past figures to present
- If inflation occurs the figures may mislead one into thinking that more has been produced but less or the same could have.
- Population numbers may have changed too, so when calculating GDP per capita this would result in a different outcome
Problems when comparing countries
- If 2 countries have same national income but if one has a larger population it’s GDP per capita would be lower
- Climatic conditions
- Geographical distances
4.
Market price
Prices consumers pay inclusive of VAT excluding subsidies
Factor cost
Revenue earned by firms from selling goods and services
Current prices
Prices that include inflation
Constant prices
Prices how they would have been today if inflation had not taken place
GDP
value of g/s produced and sold in a country irrespective of who produced them - c + I + g + (x-m)
GNP
Net property income from abroad
Value of g/s produced by citizens of a country anywhere in the world
NNP
National income
GNP - dep
