Macroeconomics

Course Instructor: Q.M Adnan Hye

National Income
Sum of all the physical goods produced and services provided by utilizing the natural resources of the country with the help of labor and capital. In addition to this the net income from abroad is also included. Accordingly, the NI is the summation of all the goods produced and services provided and the net income abroad.

Different concept relating to NI

Gross N ti G National P d t l Product:
The GNP of a country is the summation of those finally produced goods and services which the labor and capital like factors of production have produced by utilizing all the resources of the country in a year. If we represent such all aggregate output in the f th form of money we get GNP. f t GNP

GNP= P1Q1+P2Q2+P3Q3+ +------------PnQn P Qs = represents the quantities of produced goods and services. Ps = their prices But to measure GNP by this method we have to make the following cares. 1. The sale and purchase of old shares and securities. 1 securities 2. The GOVT transfer payments. [ Unemployment allowances, pension or scholarships to the students] 3. The private transfer payments. [ charity, Zakat and pocket y] money]

GNP
4. Th 4 The sale of use goods. l f d [ Second hand car and TV ] *

Measurement of GNP by aggregate expenditure method. method

If sum all the expenditures made on consumption, investment, g government expenditure and net income from aboard during p g the year, we get GNP.

Consumption Expenditure
Both explicit and implicit expenditure included. Explicit Expenditure Consumer durable, automobiles, furnitures, electronics, food, petrol and on services , ,p like education and health during a year. The implicit Expenditure consist of self consumption of a part of wheat, etc by the f f h b h producer-farmer.

Government Expenditures (G)

These expenditures may consist of Expenditures on education. ----------------------- Health Health. ----------------------- Administration. ----------------------- D f Defense. ----------Construction of infra structure. structure Other productive and non productive.

Gross private Investment

To T make expenditures on those goods k dit th d which produce further goods is known as investment investment. Expenditure on machinery. ---------------------- Pl Plants. Inventories. Share of Company.

Exports minus imports (X-M)

All above shown with the help of following equation GNP= C+I+G+ (X-M)

Measurement of GNP with income approach

Wages W Interest Rent Profits Indirect business taxes Depreciation allowances

Gross Domestic Product

Gross d G domestic product (GDP) i th ti d t is the most comprehensive measure of the output of all the factories offices and factories, offices, shops in a economy. Specially, Specially it is the sum of the money value of all final goods and services produced in the domestic economy within a year.
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Real GDP is a far better measures than nominal GDP of changes in total production. It is conventional to say that a recession occurs when real GDP declines for two or more consecutive quarters.

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What gets counted in GDP

The GDP for a particular year includes ONLY goods and p y g services produced within the year. (the resale value for house and car are not counted as GDP) Only final goods and services count in GDP (GDP does not count intermediate good) GDP counts only production take place within the geographic boundaries of the country (goods d ( d and services Pakistani produced in foreign i P ki t i d di f i countries will not be counted for Pakistans GDP, while goods and services produced by foreign companies in Pakistan territory are counted)
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What GDP is not

Only goods and services that pass through the organized market count in the GDP. (illegal ( ll l activities are not included in GDP. l d d GDP Housework are not counted) Gross domestic product is NOT a measure of the nations economic well-being. g

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Population effect on GDP

When population grow, a countrys GDP also grow. But a nation becomes richer only if its GDP grows faster than its population. population Real GDP per capital= p p Real GDP Size of population

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