National

Income
 The Economy’s
Income and Expenditure

When judging whether the economy

is doing well or poorly, it is natural to
look at the total income that everyone
in the economy is earning.
To have this number make sense, it is

also best to look at income per person.

 The Economy’s
Income and Expenditure

 For an economy as a whole, income must equal

expenditure because:
 Every transaction has a buyer and a seller.
 Every dollar of spending by some buyer is a dollar of
income for some seller.
 Say’s Law-Supply creates it’s own demand
 This process can be seen using a Circular Flow Diagram.
 Gross Domestic Product

 Gross domestic product (GDP) is a

measure of the income and expenditures
of an economy.
 It is the total market value of all final
goods and services produced within a
country in a given period of time.
 How much is the current GDP?
GNP:The sum of market value of all
final goods and services produced in a
country during a specific period of
time. Or
GNP:Market value of domestically
produced goods and services
Plus incomes earned by the residents
of a country from abroad.
Minus incomes earned by foreigners in
the country.
GDP:Market value of domestically
produced goods and services
Plus incomes earned by
foreigners in the country
Minus incomes earned by the
residents of a country from
abroad.
NNP (NET NATATIONAL PRODUCTD):
NNP=GNP-Depreciation

Per Capita Income=NNP/Total Population

PI (Personal Income):
The income received by an individual form all kinds
of sources of income
Pd (personal disposable income):personal income
minus all kinds of personal taxes.
 The Circular-Flow Diagram
Revenue Spending
Market for
Goods
Goods & Goods &
Services sold and Services
Services
bought

Firms
Households

Inputs for Labor, land,

production Market for and capital
Factors
Wages, rent, of Production Income
and profit
The Measurement of GDP

GDP is:
the market value

of all final goods and services

produced within a country

in a given period of time.

What Is Counted and Not Counted
in GDP?
GDP includes all items produced in the economy and sold
legally in markets.
GDP excludes services that are produced and consumed

at home and that never enter the marketplace.

Caring labor, the work that is normally produced by

women.
Because GDP does not count it, it diminishes its

importance.
GDP also excludes black market items, such as illegal

drugs.
 Other Measures of Income

 Gross National Product (GNP)

 Net National Product (NNP)
 National Income
 Personal Income
 Disposable Personal Income
 The Components of GDP

GDP (Y ) is the sum of the following:

 Consumption (C)
  Investment (I)
  Government Purchases (G)
  Net Exports (NX)

Y = C + I + G + NX
 GDP and Its Components
(1998)
Total (Billions Per Person (In % of Total
of Dollars) Dollars)
GDP (Y) $8,511 $31,522 100%

Consumption C 5,808 21,511 68%

Investment I 1,367 5,507 16

Government G 1,487 5,507 18

Net Exports NX -151 -559 -2

 GDP and Its Components (1998)

Government Purchases
Investment 18% Net Exports
16% -2 %

Consumption
68 %