Professional Documents
Culture Documents
Ambigah Sandran
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PowerPoint Slides
by Ambigah d/o Sandran
LEARNING OBJECTIVES
The students will be able to learn :
The concepts in national income.
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Three approaches of measuring national income.
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Uses of national income
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LEARNING OUTCOMES
At the end of the lecture, students will be able to :
Identify the concepts in national income.
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Distinguish three approaches of measuring
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national income.
Discuss the uses of national income
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INTRODUCTION
There are many concepts on the calculation of
national income.
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Ambigah Sandran
National income known as the flow of goods and
services in a nation over a certain period of time,
usually or a year.
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NATIONAL INCOME
Definition:
1. National income is the total money value of all goods and
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services produced by a nation during one year after
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deducting the depreciation value of the machines used in
production.
GDP
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DPI GNP
Concepts of
National
PI Income MP & FC
NI NNP
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NATIONAL INCOME: CONCEPTS
1. Gross of Domestic Product (GDP)
Is the total money value of the all final G&S produced
by
within a country in a given time period.
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GDP can be measured at
** current prices: basis of prevailing prices
** constant prices: basis of fixed prices prevailing in a
base year
For example:
** GDP at current price of Malaysia for 2004
= RM449 Million
** GDP at constant price of Malaysia in 1987(base year)
= RM248 million 7
NATIONAL INCOME: CONCEPTS
1. Gross of Domestic Product (GDP)
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working overseas as well as intermediate goods.
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produced by the residents of a country during a given
period of time.
For example:
** GNP included the income earned by the Malaysian
working abroad.
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included
GNP
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= GDP + net factor income from abroad
Or
GNP
= GDP + [ factor income received from abroad factor
income paid abroad]
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NATIONAL INCOME: CONCEPTS
3. Market Price and Factor Cost
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cost.
market price refers to the current price in the
market through the forces of demand and supply.
market price
- actual prices paid by consumers
- includes indirect taxes and
- excluded subsidies given to producers
- does not reflect the real price
therefore the factor cost is the real price that is
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earned by producers or sellers.
NATIONAL INCOME: CONCEPTS
3. Market Price and Factor Cost
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GDP difference at market price and factor cost are
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NATIONAL INCOME: CONCEPTS
3. Market Price and Factor Cost
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GDP at market price
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= value + indirect taxes - subsidies
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defined as the market value of the net output of final
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goods and services produced by a nation during a
year.
also referred to as the national income at market
price
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NATIONAL INCOME: CONCEPTS
5. National Income at Factor Cost (NI)
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defined as the total of all income payments made to
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factors of production
Or
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the income that is actually received by individual and
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households in an economy in a year.
PI : can be spent, pay taxes or saved.
Deduction made from national income:
1. corporate income taxes
2. retained earning
3. social security contributions
4. insurance premium
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NATIONAL INCOME: CONCEPTS
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PI = (national income + transfers payments corporate income
taxes retained earnings social security contributions
insurance premium)
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DPI is the personal income that is left remaining after the
payment of personal direct taxes
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Methods of
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measuring
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national Income
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EXPENDITURE APPROACH
national income obtain by adding all the
expenditure on goods and services in a year.
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there are four economic sector for this approach:
1. Personal Consumption (C)
2. Investment (I)
3. Government Spending (G)
4. Net Export (X-M)
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EXPENDITURE APPROACH
1. GDP mp = C+I+G+(X-M)
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3. GNP fc = GNP mp indirect taxes + subsidies
Item RM (millions)
Export 5
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Personal consumption expenditure 7
Indirect business tax 3
Government expenditure 0.55
Investment 4
Personal income tax 0.72
Subsidies 0.89
Imports 10
Factors income paid abroad 4
Factors received from abroad 10 23
Depreciation 1.35
INCOME APPROACH
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form of wages for labor, rent for land, interest for
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capital and profits to entrepreneurs.
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INCOME APPROACH
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1. Wages and salaries
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2. Net interest
3. Rental income
4. Profits
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INCOME APPROACH
1. GDP = wages +salaries + rent + profits +interest + divided
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3. National income = GNP depreciation
also known as
output approach
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value added approach
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PRODUCT APPROACH
1.GDP mp = all final products in the economy
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3. GNP fc = GNP mp indirect taxes + subsidies
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Economic performance over time
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National planning
Sectoral contributions
Economic policy
Inflationary and deflationary gaps
National expenditure
Public sector
Distribution of income
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DIFFICULTIES IN CALCULATING NATIONAL INCOME
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Problem of illiteracy
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Problem of expertise
Problem of less sophisticated and machinery
Problem of double counting
Problem of false information
Problem of multi-occupations
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SUMMARY
National income is the total income received by
all the citizen of a country within the period of
one year.
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GNP is the total value of final goods and services
produced by factors of production owned by the
residents of a country living both within the
country and abroad.
GDP is the total value of final goods and services
produced by factors of production within the
country.
NNP in the GNP excluding depreciation. Net
national product at factor cost is also known as
national income. 31
SUMMARY
There are three approaches to calculate the
national income: expenditure approach, income
approach and product approach.
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KEY TERMS:
Term Definition
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National income
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a period of time, usually a year.
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sellers.
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The market value of the net output of goods and
NNP
services produced by a nation in a year.
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consumption firms, individuals or households.
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The purchase of capital goods by firms for use in
Investments production and in changes in the farm's
inventories.
Government The expenditure incurred by federal, state and
spending local governments for final goods and services.
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KEY TERMS:
Term Definition
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Wages and Income received by labour from firms for services
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salaries rendered to them.