Nominal GDP measures the value of output in a given period in the price of that period.
Real GDP is the value of the economy's output measured in the prices of some base year.
Sunday, April 19, 2009
Saturday, April 18, 2009
Measurement of National Income - Income Approach
Income Approach:
National income is the summation of all the annual rewards given to the four factors of production in a given time period (one year).
it can be obtained by subtracting indirect business taxes and adding subsidy from NNP. It is also called NI at factor cost.
NI = NNP - Indirect tax + Subsidy
Where,
NNP = GNP - Capital Consumption
We now explain the four categories of payments: wages, rent, interest and profit.
(i) Wages: It includes the wages and salaries paid by the businesses and govt. to suppliers of labour. it also include wage and salary supplements such as, payments by employers into social insurance and into a variety of private pension, health and welfare funds for workers.
(ii) Rent: It consists of income payments receive by household and business which supply property resources.
(iii)Interest: Here interest is expressed in net rather than gross terms. Net interest receive by household is difference between the interest they receive (from saving account ,certificate of deposits and the like)and the interest they pay(to banks for mortgages, credit cards and other loans)
(iv)Profits: It includes total gross corporate profits + proprietors income.proprietors income refers to the net income of sole proprietorship and partnership.corporate profit consist following three items
1.Corporate income tax: A portion will be claimed by the govt.
2.Dividends : A portion pays to stockholder.
3.Undistributed Profit: These retained earnings are invested currently or in future in new plants and equipment.
National income is the summation of all the annual rewards given to the four factors of production in a given time period (one year).
it can be obtained by subtracting indirect business taxes and adding subsidy from NNP. It is also called NI at factor cost.
NI = NNP - Indirect tax + Subsidy
Where,
NNP = GNP - Capital Consumption
We now explain the four categories of payments: wages, rent, interest and profit.
(i) Wages: It includes the wages and salaries paid by the businesses and govt. to suppliers of labour. it also include wage and salary supplements such as, payments by employers into social insurance and into a variety of private pension, health and welfare funds for workers.
(ii) Rent: It consists of income payments receive by household and business which supply property resources.
(iii)Interest: Here interest is expressed in net rather than gross terms. Net interest receive by household is difference between the interest they receive (from saving account ,certificate of deposits and the like)and the interest they pay(to banks for mortgages, credit cards and other loans)
(iv)Profits: It includes total gross corporate profits + proprietors income.proprietors income refers to the net income of sole proprietorship and partnership.corporate profit consist following three items
1.Corporate income tax: A portion will be claimed by the govt.
2.Dividends : A portion pays to stockholder.
3.Undistributed Profit: These retained earnings are invested currently or in future in new plants and equipment.
Measurement of National Income - Expenditure Approach
Expenditure Approach:
According to this method the money value of all expenditure on final product will add up to GNP from which capital consumption and net indirect tax (indirect tax-subsidy) are deducted.
NI = GNP - Capital Consumption - Indirect Tax + Subsidy
where,
GNP = C + I + G + NX
Net Income form abroad=0
We now explain four categories of expenditure:
(1) Consumption Expenditure (C):
It includes expenditure by household (a) durable goods such as, automobile, refrigerators etc, (b) non-durable goods such as: food, shirts etc and (c) services such as doctors, education etc.
(2) Gross Investment:
It includes (a) all final purchase of machinery, equipment, and tools by business enterprise in given time period-change in capital stock (b) all current construction (c) changes in inventories: changes in stocks of finished goods and goods in process as well as changes in the raw material that businesses keep on hand. Inventories can be negative, positive or zero
(3) Government Expenditure (G):
This includes all governmental spending (federal, state and local) on the finished product of business and all direct purchases of resources such as labour etc, it excludes all govt. transfer payments, because it doesn't reflect any current production.
(4) Net Exports (NX) = Export - Import :
This includes the difference between the imports and exports, called net exports. it is the component of the total demand for our goods. it can be negative positive or zero.
According to this method the money value of all expenditure on final product will add up to GNP from which capital consumption and net indirect tax (indirect tax-subsidy) are deducted.
NI = GNP - Capital Consumption - Indirect Tax + Subsidy
where,
GNP = C + I + G + NX
Net Income form abroad=0
We now explain four categories of expenditure:
(1) Consumption Expenditure (C):
It includes expenditure by household (a) durable goods such as, automobile, refrigerators etc, (b) non-durable goods such as: food, shirts etc and (c) services such as doctors, education etc.
(2) Gross Investment:
It includes (a) all final purchase of machinery, equipment, and tools by business enterprise in given time period-change in capital stock (b) all current construction (c) changes in inventories: changes in stocks of finished goods and goods in process as well as changes in the raw material that businesses keep on hand. Inventories can be negative, positive or zero
(3) Government Expenditure (G):
This includes all governmental spending (federal, state and local) on the finished product of business and all direct purchases of resources such as labour etc, it excludes all govt. transfer payments, because it doesn't reflect any current production.
(4) Net Exports (NX) = Export - Import :
This includes the difference between the imports and exports, called net exports. it is the component of the total demand for our goods. it can be negative positive or zero.
Measurement of National Income - Product Approach
Product Approach:
According to this method the money value of all the final goods and services will add up to GNP from which capital consumption and net indirect tax (indirect tax - subsidy)are deducted.
N.I = GNP - Capital Consumption - Indirect Tax + Subsidy
where,
GNP = sum of Pi Qi
Qi = Final Goods and Services
Pi = Prices of Qi
Precautions:
1.Avoid double counting.
2.Avoid counting of excluded transactions.
According to this method the money value of all the final goods and services will add up to GNP from which capital consumption and net indirect tax (indirect tax - subsidy)are deducted.
N.I = GNP - Capital Consumption - Indirect Tax + Subsidy
where,
GNP = sum of Pi Qi
Qi = Final Goods and Services
Pi = Prices of Qi
Precautions:
1.Avoid double counting.
2.Avoid counting of excluded transactions.
Wednesday, April 15, 2009
How National Income is measured?
National income is measured in three different ways,i.e.
1.Product Approach
2.Expenditure Approach
3.Income Approach
1.Product Approach
2.Expenditure Approach
3.Income Approach
What is National Income?
National Income:
The total income of residents of an economy in a given time period after providing for capital consumption and net indirect taxes .
NI = NNP - Net indirect tax
OR
NI = NNP - Indirect tax + Subsidy
where,
NI = National Income
NNP = Net National Product
Indirect taxes are excise and sales tax.
Subsidy is government grants to supplies of goods and services.
The total income of residents of an economy in a given time period after providing for capital consumption and net indirect taxes .
NI = NNP - Net indirect tax
OR
NI = NNP - Indirect tax + Subsidy
where,
NI = National Income
NNP = Net National Product
Indirect taxes are excise and sales tax.
Subsidy is government grants to supplies of goods and services.
Subscribe to:
Posts (Atom)
