The document discusses national income and GDP. It defines national income as the total value of all final goods and services produced in an economy in a year. National income can be measured using the production, income, and expenditure methods. GDP is a measure of the total value of final goods and services produced domestically in a year. It includes consumption, investment, government spending, and net exports. While GDP indicates economic activity and growth, it does not account for non-market activities or capture social welfare.
3. Group Members
Saima Pervaiz
Mehak Tanveer
Rida Aslam
Shabnoor Javed
Mishal Mary
Faryal Iqbal
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4. Content:
National income
Methods to measure National Income
Concept of GDP and GNP as National Income
Flow Diagram
Importance of National Income
Advantages and Disadvantaged of GDP
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5. National Income
The sum total of the values of all goods and services
produced in a year
It is the money value of the flow of goods and services
available in an economy in a year
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6. National Income
National Income refers to-
The income of a country
to a specified period of time, say a year
includes all types of goods and services
which have an exchange value
counting each one of them only once
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7. NI – Methods of computation
Three methods to measure the national income
They are-
Production method or Census method
Income method
Expenditure method
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8. Production method
In this method
The total products produced in the economy are
calculated for the year and the value is added without
double counting
The economy is classified into sectors like
Agricultural, industrial, fisheries, forest, direct
services and foreign transactions etc
In each sector, we can find the value of final goods
and services
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9. Production method
In the international transactions, net foreign income
is calculated by subtracting the total imports from
the total exports and added to the national income
The results of these sectors, when combined, gives
the national income or national product
The census or product method can be expressed
through the formula
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10. Production method
O = C + I
Where O stands for output,
C stands for consumption of goods
I stands for investment goods
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11. Income Method
According to this method
Net incomes of individuals and business houses
during a year are added to know the national income
Only those incomes earned and received for
producing goods and for rendering services are to be
counted
Transfer payments such as old age pensions , widow
pensions and unemployment benefits etc should not
be counted as these are the incomes received without
contributing to the production
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12. Income Method
People get incomes in the form of
Rents, wages or salaries, interest and profit
The formula is
Y = C + S
Here Y stands for Total Income
C stands for consumption and S stands for Savings
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13. Expenditure method
One man’s income is another man’s expenditure
Therefore national income can be arrived at by
adding the total expenditure of individual and
business firms during a year
Expenditure or outlay on final products takes place in
three ways
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14. Expenditure method
Expenditure or outlay on final products takes place in
three ways
Expenditure by consumers on goods and services
Expenditure by entrepreneurs on capital or
investment goods
Expenditure by government on consumption and
capital goods
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15. Expenditure method
The formula for this method is
Y = C + I
Here Y stands for total expenditure
C stands for consumption expenditure
I stands for investment expenditure
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16. National Income concepts
The following are the concepts of national income
Gross National Product – GNP
Net National Product – NNP
Personal Income – PI
Per capita Income – PCI
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17. National Income concepts
Gross National Product
National Income is the sum total of values of all
goods and services produced during a year
The money value of this total output is known as
Gross National Product – GNP
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18.
19. GDP(Gross Domestic Product)
Market value of finally prepared goods and services
Within a country
Restricted to a specific time period (usually of one
year)
Indicator of the progress of a country
Commonly used to calculate national income
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20. The Components of GDP
YYYY ==== CCCC ++++ IIII ++++ GGGG ++++ NNNNXXXX
Government
Government
purchases of goods
purchases of goods
and services
and services
Total demand
for domestic
output (GDP)
Total demand
for domestic
output (GDP)
is composed
is composed
of
of
Consumption
spending by
households
Consumption
spending by
households
Investment
spending by
businesses and
households
Investment
spending by
businesses and
households Net exports
Net exports
or net foreign
demand
or net foreign
demand
22. (1)Consumption (c)
“C” is private consumption the economy.
Consumption is spending by households on
goods & services excluding purchase of
new housing.
Include - food
- rent
- medical expenses
-clothing
23. (1) Durable goods
This items have larger
life span.
Consider similar to a
consumer investment
8% GDP
Its components
- autos(3.6%)
- furniture(3%)
Ovens
24. Examples of
durable goods
- Refrigerators
- Washing
machine
-Toster
- Ovens & etc.
25. (2) Non –durable
goods
Non durable items
have shorter life span.
20% GDP
Its components
-food(10%)
-clothing(2.7%)
-fuel(2.4%)
27. (3)Services:
Fastest growing component
of consumer purchases has
been the area of services
40% GDP
components
-real estate(10%)
-healthcare(12%)
37. 2. 2nd Hand Sales
–– no current production.
A. 1957 Chevy bought in 2007
SSaalleessmmaann
[It has not been produced again in 1963 & would not count.]
The salesman is doing productive work. His commission would count.
B. Boots produced in 1980 are bought in a Thrift Store in 07.
They also have not been produced again.
Salesman’’s commission would count.
You are buying his services.
SShhooee ssaalleessmmaann
5577 CChheevvyy
38. 3. Purely Financial TTrraannssaaccttiioonnss – stocks, bonds, CDs.
There is nnoo ccuurrrreenntt pprroodduuccttiioonn.
Ex: If 110000 sshhaarreess ooff DDeellll ssttoocckk is bought
BBuuyyiinngg ssttoocckk iiss nnoott bbuuyyiinngg aa pprroodduucctt bbuutt bbuuyyiinngg
oowwnneerrsshhiipp ooff tthhee ffiirrmm.. BBuuyyiinngg bboonnddss iiss making a loan..
II’’mm nnoott bbuuyyiinngg aa DDeellll ccoommppuutteerr
bbuutt ppaarrtt oowwnneerrsshhiipp ooff DDeellll..
EExxcchhaannggiinngg oonnee ffiinnaanncciiaall aasssseett ffoorr aannootthheerr
[[sswwaappppiinngg bbiittss ooff ppaappeerr]]
39. 44.. PPuubblliicc TTrraannssffeerr PPaayymmeennttss ––wweellffaarree,, uunneemmppllooyymmeenntt,, ssoocciiaall
sseeccuurriittyy. [There is nnoo ccoonnttrriibbuuttiioonn ttoo ffiinnaall pprroodduuccttiioonn]
“Now that I’ve gotten my
welfare check, I can get an
iPhone”
Also, Private Transfer Payments, like your
parents giving you $250 cash for Christmas,
or - $100 for making an “A” in economics.
[Just transferring funds from one private
individual to another private individual]
40. Illegal business activity, because it goes unreported, also does
not count. Making up 11//33 of the ““uunnddeerrggrroouunndd eeccoonnoommyy,,”” it
includes murder for hire, gambling, drugs, prostitution, and
money laundering.
Making money illegally (drug money)
and making it look like it was legally
earned (like buying a laundry mat
or car wash that deal in cash) and
report it as legally earned.
“I’m getting $1,000 to kill
you, but at least it
will not count in GDP.”
Money Laundering
41.
42. Definition
Gross National Product (GNP):
It is the combined value of all the
final goods and services produced in a country during
an accounting year, including net factor income from
foreign countries
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43. How To Calculate
GNP = GDP + Net factor income from abroad
Net factor income: it difference between income
earned in foreign countries by residents of a country
and income earned by foreign nationals domestically.
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44. What does GNP indicate?
GNP helps to measure the contribution of residents
of a country to the flow of goods and services within
and outside the national territory.
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45. Double Accounting
A term used to describe the problematic situation that
occurs when the costs of intermediate goods used to
produce a final good are included in the calculation of
GNP. But the price of the final good already includes the
price of intermediate goods.so this way we are counting
price of intermediate goods twice, this situation is called
double accounting.
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52. GNP as a inductor
GNP is not a good inductor due to its limitation.
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58.
59. The Circular-Flow of national Income
Markets for Goods and Services
Firms sell
Households buy
Markets for Factors of Production
Households sell
Firms buy
60. 60
60
Hosehold Firms
Factors of Production
Factoral Income (Y)
= 7000
Savings (S)
= 2000
Consumption (C)
= 5000
Goods and Servies
Investment (I)
= 2000
61. The Circular-Flow Diagram
Factors of Production
Inputs used to produce goods and services
Land, labor, and capital
62. Importance of national income
It indicates the prosperity of a nation. Growth in
national income indicates economic prosperity
It indicates the standard of living of people of a
country
It indicates the per capita income with which we can
compare the levels of development of all the countries
Countries can be classified as ‘developed’ and
‘developing’ and ‘under developed’ based on their per
capita income only
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63. Importance of national income
NI estimates are very helpful to the Finance Minister.
It guides him to make proper and right decisions in
regard to taxation and budgets
It is useful to compare the prosperity of a country at
different times
It provides an instrument of economic planning
It indicates the trends of inflation and deflation.
Proper corrective action can be taken against them
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64. Importance of national income
It helps to know the progress of various sectors in the
economy. Imbalanced growth, if any, can be solved
It helps in forecasting the economic future and
preplanning is possible
It indicates the economic status of a country among
the nations of the world
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65. Advantages of national income
Gross Domestic Product (GDP) is an economic
measure of a nation's total income and output for a
given time period (usually a year). Economists use
GDP to measure the relative wealth and prosperity of
different nations, as well as to measure the overall
growth or decline of a nation's economy
The most common way to measure GDP is the
expenditure approach
66. Benefits of Gdp
Total domestic consumption:
This is the total amount spent on domestically
produced final goods and services. Final goods are
items that will not be resold or used in production
within the next year — milk, cars, bow ties, and so on.
67. Benefits of gdp
2 Total domestic investment expenditures:
This measurement includes not only investments in
stocks and bonds, but also investments in equipment —
such as bulldozers, computer servers, and commercial
buildings — that will be useful over a long period of time.
It also includes inventory goods — final goods waiting to
be sold that a company still has on hand.
Government expenditures: This includes everything from
paying military salaries to building roads and maintaining
monuments, but does not include welfare and social
security payments
68. Benefits of gdp
.3 Net exports:
Net exports are the total of goods and services
produced domestically and sold to foreigners minus
goods and services produced by foreigners but sold
domestically (imports).
Using GDP as a measure of a nation's economy makes
sense because it's essentially a measure of how much
buying power a nation has over a given time period.
GDP is also used as an indicator of a nation's overall
standard of living because, generally, a nation's
standard of living increases as GDP increases.
69. Disadvantages of gdp
4 GDP doesn't count unpaid volunteer work:
GDP doesn't take into account work that people do
for free, from an afternoon spent picking up litter on
the roadside to the millions of man-hours spent on
free and open source software (such as Linux). In fact,
volunteer work can actually lower GDP when
volunteers do work that might otherwise have gone to
a paid employee or contractor
70. Disadvantages of gdp
Disasters can raise GDP:
Wars require soldiers, oil spills require cleanup, and
natural disasters require health workers, builders, and
all manner of helping hands. Rebuilding after a
disaster or war can greatly increase economic activity
and boost GDP.
71. Disadvantages of gdp
GDP doesn't account for quality of goods:
Consumers may buy cheap, low-quality, short-lived
products repeatedly instead of buying more expensive,
longer-lasting goods. Over time, consumers could spend
more replacing cheap goods than they would have if they
had bought higher-quality goods in the first place, and
GDP would grow as a result of waste and inefficiency.
Although economists are constantly working on other
ways to measure an economy, GDP is still the best
indicator of a nation's overall economic health, in spite of
its shortcomings
Notas do Editor
Consumption (C):
Is the spending by households on goods and services
e.g. buying clothing, food, movie tickets
Investment (I):
Is the purchases of capital equipment and structures
e.g. factory, houses, etc.
Government Purchases (G):
Includes spending on goods and services by local, provincial and federal governments (e.g. roads, police, etc.).
Does not include transfer payments, because it is not made in exchange for currently produced goods or services.
Net Exports (NX):
Exports minus imports.