What is national income?
National income:
-is the total amount of money earned within a country.
National income accounting:
-is a set of rules and definitions for measuring economic activity in the aggregate economy.
GDP and GNP
Gross Domestic Product (GDP):
is the total market value of all final goods and services produced in an economy in a one-year period.
Gross National Product (GNP):
is the aggregate final output of citizens and businesses of an economy in one year.
2 Ways to Eliminating Intermediate Goods
- calculate only final sales
- value added approach
Formula to Calculate Net Domestic Product (NDP) and National Income
- Net Domestic Product, NDP = GDP - Depreciation
- National Income = NDP - Indirect taxes
2 Methods of Calculating GDP
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
- For example:
|
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)
- For example:
|
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 |
Example of calculating income approach
GDP deflator
Reflection- Macroeco Chp 2- National Accounts
From this chapter, i learnt what is GDP, GNP, and 2 ways to eliminate the immediate good. I learnt the method of expenditure approach and income approach when need to measure GDP. GDP can be calculated a country's annual income and from GDP we can know the country is facing deficit or not.