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INCOME
ACCOUNTING
𝐺𝑁𝑃 = 𝐶 + 𝐼 + 𝐺 + 𝑋 − 𝑀 + 𝑁𝐹𝐼𝐴
11
where,
𝐶 = Consumption
𝐼 = Investment
𝐺 = Government expenditure
(𝑋 − 𝑀) = Export minus import
𝑁𝐹𝐼𝐴 = Net factor income from Abroad
GROSS NATIONAL
$ Million
PRODUCT (GNP)
Private Consumption 200
Gross Investment 250
𝐺𝑁𝑃 = 𝐶 + 𝐼 + 𝐺 + 𝑋 − 𝑀 + 𝑁𝐹𝐼𝐴 Gov't expenditure 100
Exports 80 12
𝐺𝑁𝑃
= $200 + $250 + $100 + $80 − $30 Imports 30
+ $15
Indirect Business Taxes 10
Subsidies 5
𝑮𝑵𝑷 = $𝟔𝟏𝟓 𝒎𝒊𝒍𝒍𝒊𝒐𝒏 Net Income from abroad 15
CURRENT VS REAL GNP
CURRENT GNP
▹ = PcQc
14
Where:
Pc = Current Price
Pb = Base Price
CURRENT VS REAL GNP
17
Then:
Real GNP = PbQc
𝑃𝑐𝑄𝐶
=
𝑃𝑟𝑖𝑐𝑒 𝐼𝑛𝑑𝑒𝑥
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐺𝑁𝑃
=
𝑃𝑟𝑖𝑐𝑒 𝐼𝑛𝑑𝑒𝑥
OTHER CONCEPTS OF
NATIONAL INCOME
ACCOUNTING
OTHER CONCEPTS OF
NATIONAL INCOME ACCOUNTING
21
▹ Can be used to compare the productivity of various
countries with a high degree of accuracy
𝐺𝐷𝑃 = (𝑃 ∗ 𝑄)
2
2
where,
𝑃 = Price of goods and service
𝑄 = Quantity of goods and service
denotes the summation of all
values
GROSS DOMESTIC
PRODUCT (GDP) Production and Price Statistics for 2017
𝐺𝐷𝑃 = (𝑃 ∗ 𝑄)
Product Quantity Price Value
𝐺𝐷𝑃 = ($25 ∗ 200) + ($5 ∗ 160)+ Haircuts 200 $ 25 $ 5,000 2
($50 ∗ 40) 3
Expenditure Approach
- most commonly used GDP formula which is based
on the money spent by various groups that 2
participate in the economy 4
𝐺𝐷𝑃 = 𝐶 + 𝐼 + 𝐺 + (𝑋 − 𝑀)
where,
𝐶 = Consumption
𝐼 = Investment
𝐺 = Government expenditure
(𝑋 − 𝑀) = Export minus import
GROSS DOMESTIC PRODUCT (GDP)
Income Approach
- takes the total income generated by the goods and
2
services produced
5
𝐺𝐷𝑃
= 𝑇𝑜𝑡𝑎𝑙 𝐼𝑛𝑐𝑜𝑚𝑒 + (𝐼𝑛𝑑𝑖𝑟𝑒𝑐𝑡 𝑇𝑎𝑥𝑒𝑠 − 𝑆𝑢𝑏𝑠𝑖𝑑𝑖𝑒𝑠)
+ 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛
𝑇𝐼𝑛𝑐𝑜𝑚𝑒
= 𝐶𝑜𝑚𝑝𝑒𝑛𝑠𝑎𝑡𝑖𝑜𝑛 𝑜𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠 + 𝑁𝑒𝑡 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 + 𝑅𝑒𝑛𝑡𝑎𝑙 𝐼𝑛𝑐𝑜𝑚𝑒
+ 𝐶𝑜𝑟𝑝𝑜𝑟𝑎𝑡𝑒 𝑝𝑟𝑜𝑓𝑖𝑡𝑠 + 𝑃𝑟𝑜𝑝𝑟𝑖𝑒𝑡𝑜𝑟𝑠 ′ 𝐼𝑛𝑐𝑜𝑚𝑒
Using Expenditure Approach
Transfer Payments $ 54
Interest Income $ 150
Depreciation $ 36
Wages $ 67 𝐺𝐷𝑃 = 𝐶 + 𝐼 + 𝐺 + (𝑋 − 𝑀)
Gross Private Investment $ 124
2
Business Profits $ 200
𝐺𝐷𝑃 = $304 + $124 + $156 + $18 6
𝑮𝑫𝑷 = $𝟔𝟎𝟐
TYPES OF GDP
▹ Real GDP
- sum of all goods and services produced at constant
prices
- based on a certain base year or the previous year
2
8
▹ Nominal GDP
- Total value of all goods and services produced at
current market prices
- all the changes in market prices during current year
due to inflation or deflation
Calculating Real GDP
First step:
Bats 20 $ 5.00
2003
Real GDP in 2003 (base-year
Balls 160 $ 0.50 prices method) is $270.
Bats 22 $ 22.50
Methods in Calculating
Real GDP
Step 3: Calculate the average of the two growth rates. This average
growth rate is the growth rate of real GDP from last year to
current year.
Step 4: Repeat steps 1, 2, and 3 for each pair of adjacent years to link
real GDP back to the base year’s prices.
Calculating Real GDP
2002
Real GDP in 2002 is $200.
Balls 100 $ 1.00 3
8
2003
Balls 160 $ 0.50
Bats 22 $ 22.50
NET NATIONAL PRODUCT
4
▹ National product concept based on resident and includes 0
National Income 9
Income Method
+ Add all incomes in whatever form they are earned , wages ,salaries
,rent ,profit ,interest etc.
- Stock appreciation ( Increased valuation due to inflation )
- Financial services profit ( bank lending - deposit rates )
= Net Domestic Product at factor cost
- Net Factor income ( Factor incomes earned abroad less 5
0
factor income earned in a country and sent abroad )
= Net National Product at factor cost ( National Income ) Exclude
Transfer Payments * Include Payments / Benefit in kind
Intermediate
Final goods
good
Sushi: $1000
Fish: $400
Pay: $1000
National Income
Y= 2,000 + 1,000 + 700 + (1,200 – 1000) – 250 – 200
Y=3,450
PERSONAL INCOME
57
▹ Includes compensation from a number of sources
including salaries, wages and bonuses received
from employment or self-employment; dividends
and distributions received from investments; rental
receipts from real estate investments and profit-
sharing from businesses.
SIGNIFICANCE OF PERSONAL
INCOME
transfer incomes
▹ Formula:
DPI = Personal Income – Personal Income Taxes
Payments
DISCRETIONARY INCOME
▹ Formula:
∆𝑆
𝑀𝑃𝑆 =
∆𝐷𝑃𝐼
▹ Formula:
C = A + MD