What is National Income ?
National income :
The monetary value of the final goods and services produced by an economy over a period of time - usually one year, although figures may be produced on a quarterly basis.
National Income Accounting :
A set of rules and definitions for measuring economic activity in the aggregate economy – that is, in the economy as a whole.
GDP and GNP
Gross Domestic Product (GDP) :
- The total market value of all final goods and services produced in an economy in a one-year period.
- GDP measures the economic activity that occurs within a country.
Gross National Product (GNP) :
- The aggregate final output of citizens and businesses of an economy in one year.
- GNP measures the economic activity of the citizens and businesses of a country.
Reflection on Macroeconomics Chapter 2 : National Account
Ways to Eliminating Intermediate Goods
- Calculate only final sales
- Value added approach
Example of Value Added Approach Eliminates Double Counting :
Formula to Calculate Net Domestic Product (NDP) and National Income
- Net Domestic Product, NDP = GDP - Depreciation
- National Income = NDP - Indirect taxes
GDP Deflator
- an average of current prices expressed as a percentage of base year prices.
- GDP Deflator measures the price level.
- The higher the nominal GDP for a given real GDP, the higher the GDP Deflator, i.e., the higher are the prices.
2 Methods of Calculating
1. Expenditure Approach
- GDP = C + I + G + (X - M) where
C = consumption
I = Investment
G = Government expenditure
X = Export of goods and services
M = Import of goods and services
(X-M) = Net export of goods and services
|
Item |
Amount (RM billion) |
|
Consumption expenditure |
9,675 |
|
Investment |
2,140 |
|
Government expenditure |
2,671 |
|
Net export (Export minus import) |
-711 |
|
GDP |
13,775 |
2. Income Approach
- GDP = Sum of incomes firms pay to households for use of factor services (wages, interest, rent, profit)
|
Item |
Amount (RM billion) |
|
Wages/Salary (compensation of employees) |
7,882 |
|
Rent, profit, net interest rate (net operating surplus) |
3,334 |
|
Net domestic product at factor cost (GDPFC) |
11,216 |
|
Indirect taxes – subsidies |
955 |
|
Depreciation (capital consumption) |
1,686 |
|
GDP (income approach) |
13,857 |
|
Statistical discrepancy |
-82 |
|
GDP (expenditure approach) |
13,775 |