this chapter was taken from the book ECONOMICS 3rd edition by Feliciano Fajardo.. This is for classroom instruction purposes.. Thank you

1. PRINCIPLES OF ECONOMICS
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2. The income of the nation is measured by the
total earnings of the factors of production owned by its
citizens or by the total market value of all final goods
and services produced by its citizens.
Countries usually show their achievements by
economic indicators like gross national product (GNP),
per capita income (PCI), or per capita (GNP).

3. A company hires the factors of production from
individuals or households who own them. These
productive factors are land. Labor, capital and
entrepreneurship. In return, the owners of said factors
receive their payments such as wages, for the laborers,
rents for the landlords, interest for the capitalist, and
profits for the entrepreneurs. The sum of all these factor
payments are known as the national income.

4. Households Firms
Factor Payments
Factors of Production
Consumption Expenditures
Goods and Services

5. Gross National Product (GNP). It is the total market value of all final goods
and services produced by citizens in one year.
National Income. It is the total income of the total factors of production in one
year or the total payments received by citizens in one year.
Per capita income (PCI) – is income per head
PCI = National Income
Population
Per capita GNP = Gross National Product
Population

6. Gross Domestic Product (GDP). It is the total market value
of all final goods and services produced within the territories
of a country in one year.
Money GNP. It is the value of GNP at current price or
market price.
Real GNP. It is the value of GNP in terms of the
number of goods and services produced.
Real GNP = Money GNP X 100
Price Index

7. Final Goods and Services. are those which sold for
the last time, and these are not for further processing
or manufacturing. Example is bread. Flour is not a final
product, it is used for making bread, it is referred to as
intermediate product.
Disposable Income. It is a personal income less
personal taxes.

8. Depreciation. It is an allowance for capital goods like
machines which have been consumed in the process
of production. A machine depreciates not only
because of use through time but also as a result of
obsolescence or calamities like fire and flood.

9. It is the amount of money spent on goods and services
which yield direct satisfaction. Part of income which are not
consumed is called saving.
Factors Influencing Consumption
1. Distribution of National Income
2. Rate of Interest
3. The desire to hold cash
4. Price Level
5. Population
6. Income
7. Taxes
8. Attitudes and Values

10. It is the expenditure on new capital goods.
Capital goods are produced goods which are used to
produced other goods. Investment plays a very vital
role in the economy because it creates more
employment, production and consumption. Clearly,
more investment means more national income or
gross national product.

11. Investment creates more income several times.
This multiplied effects of investment on income is
called multiplier effect. However, accelerator is related
to multiplier. The effect of consumption on investment
is known as accelerator effect. More consumption
stimulates further investment.

12. In order to accumulate capital, it was first necessary for society
to save for investment funds. In short, the classical economists believed
“that more saving was good because more funds would be available to
investment.” However, John Maynard Keynes disagreed with such
economic theory. He said that “the attempt of consumers to save more will
reduce saving”. This is the paradox of thrift. If all individuals in a society
save, then there is a big decline in consumption. This greatly reduces
the demand for goods and services.