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Methods of Measuring
National Income (NI)
There are three methods to measure
national income. Why?
Because NI can be viewed from three
dimensions which are: 1)total output, 2)total
income, 3)total expenditure.
INCOME = PRODUCT = EXPENDITURE
The concept above gives the same result
when we measure National Income.
Expenditure Approach
Under this method, national income is calculated
by adding all the EXPENDITURE on Goods and
Services in a year.
National expenditure comes from FOUR (4)
economic sectors, which are:1. Personal Consumption (C)
2. Investment (I)
3. Government Spending (G)
4. Net Exports (X M)
GDP, cont..
How to measure GDP? through Market Price
and also at Factor Cost.
Market Price?
Refers to current price in the market or the actual
price paid by the consumers which include (plus)
indirect taxes and excludes (minus) subsidies
given to producers does not reflect real price
Factor Cost?
Refers to real prices that is earned by
producers or sellers.
GDP, cont..
What is Indirect Taxes and Subsidies?
Indirect Taxes certain amount being
levied on goods such as excise duty, import
duty, sales tax -- discourage the producers
to produce more goods and services
Subsidies Incentive given by the
government to producers to encourage
them producing more goods and services.
GDP, cont..
*GDP at market price = C + I + G + (X M)
Growth Rate
The economic growth rate of a country
can be measured as GDP or GNP based on
real income / real GNP
Growth rate; the percentage (%) change
in the quantity of goods and services
produced from one year to another.
DETERMINATION OF
EQUILIBRIUM OUTPUT
Y*
AD
Aggregate Output
Determinants of Equilibrium
Equilibrium can be determined in :
A two-sector economy (households and firms)
A three-sector economy (households, firms
and government)
A four-sector economy (households, firms,
government and foreign sector)
Cont..
Aggregate Supply is the aggregate output
(Y).
So,
AS = Y
AD = C + I + G + (X-M)
Cont..
AD
Y = AS = AD
C + I + G + (X-M)
45
National Income, Y
Leakage / Injection
S+T+M
I+G+X
National Income
-L
Y*
THANK YOU