7. ECO 415-Measuring gross domestic output and national income accounting - Copy.pptx

8/9/2019 7. ECO 415-Measuring gross domestic output and national income accounting - Copy.pptx

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ECONOMICS(ECO 415)

MEASURING GROSS DOMESTIC

OUTPUT AND NATIONAL INCOMEACCOUNTINGMs. Tai Nyuk Chin

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DEFINITION OF NATIONAL INCOME(NI)

National income can be defined as the totalincome received by all economic agents in theeconomy based on the goods and services

produced in the economy, in a certain period oftime.

These economic agents perform the activities thatcontribute to the production of total output in the

economy.

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GROSS DOMESTIC PRODUCT (GDP)

i. GROSS DOMESTIC PRODUCT (GDP)

. GDP is the total money value of all final goods andservices produced within a country in a given time period.

.

GDP excludes goods and services produced by Malaysiancitiens wor!ing overseas but includes goods and servicesproduced by foreign wor!ers in Malaysia.

. "t also excludes intermediate goods and only the value offinal goods are counted.

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GROSS NATIONAL PRODUCT (GNP)

ii. GROSS NATIONAL PRODUCT (GNP)

. GNP is the total mar!et value of all final goods andservices produced by the residents of a country during agiven period of time.

. GNP is simply the total income by citiens of the countryregardless where they are.

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GNP = GDP + (factor income received from abroad factor incomepaid to abroad)

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GNP = GDP + Net factor income from abroad


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NATIONAL INCOME (NI)CALCULATING ! APPROAC"ES

i. PRODUCT#OUTPUT APPROAC"

. #nder this approach, N" is measured by net value of all final goodsand services produced by a nation during a year.

. "n Malaysia there are three sectors contributing to the GDP$

a. Primary sector $ Mining and %uarrying, agriculture,fishing and forestry.

b. &econdary sector $ Manufacturing and construction.

c. Tertiary sector $ 'lectricity, gas and water, wholesaleand retail trade, finance, insurance and ban!ing, real

estate and business services, transport, storage andcommunication, govt. services and other services.

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GDP = Final products produced by all economic sectors


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ii. E$PENDITURE APPROAC"

. N" is obtained by adding all the expenditure on goods andservices in a year.

. National expenditure is made up of four economic sectors$

a. Personal consumption, ( )expenditure made by household*.

b. "nvestment, " )expenditure made by firms*.

c. Government spending, G )expenditure made by federal, stateand local government*.

d. Net exports )+M*.

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GDP = C + + G + (!"#)


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iii. INCOME APPROAC"

. N" is measured by summing up all the various types of incomepaid )rewards* to firms and households.

. "n "ncome approach all the figures are infactor costbecause

only earningsare calculated.. Ma-or income component includes$

a. ages and salaries )"ncome received by labor*.

b. Net interest/dividend )"ncome received by contributing

capital*.c. 0ent )"ncome received by contributing land*.

d. Profits )"ncome received by entrepreneur*.

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GDP = $a%es + salaries + rent + profit + dividend&interest


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USES OF NATIONAL INCOME DATA

1. T% &'asu' h' '*%n%&i* +%,h %-' i&'. 1 country is said to experience a satisfactory rate of economic growth

if there is an increase in the real GNP over the years.

. "t is measured as2

. "f there is a positive economic growth, it means there is an increase inthe amount of goods and services in the country and thus, individuals

can en-oy more goods and services.

. This indicates the increasing in societies3 standard of living as well ascountry3s development.

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Real GNP1 Real GNP0

Real GNP0X 100Growth rate =


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. San/a/ %0 i-in+ *%&2ais%n

. &tandard of living reflects the individuals3 welfare since itshows how much of the goods and services that can beconsumed by each individual in a country.

. The more goods that they can be consumed, the highertheir standard of living is and thus, the better their life willbe.

. &tandard of living can be measured as follows2

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GNP

Population

= averae in!o"e per per#on per $ear

P%& =


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!. T% /''&in' h' /isi3ui%n %0 in*%&' in h''*%n%&y

. The N" data will shows the income earned by differentgroups of people.

. The distribution of income between the rich and the poorpeople in a country should be e%ual.

. hen the distribution of income is not e%ual, it means thatthere is a vast difference in the average income earned by

individuals in the economy.. The income received by higher income group should not

exceed the average income earned by lower income groupby a large difference.

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4. T% assis h' +%-'n&'n in h' 2annin+

. "t is noted that the N" data provides the amount of goodsand services produced in the country.

. Thus, this will assist the government in determining whichsectors in the economy that contributes more to theeconomic growth.

. Then, the government can decide which sector shall needad-ustment and assistance.

. This is why N" data is very useful to the government inplanning for economic development to ensure a continuouseconomic growth.

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PROLEMS IN MEASURING NI

1. P%3'& %0 D%u3' C%unin+

. ill occur when both values of final goods andintermediate goods are included.

.

To avoid this problem, only the value of final goods or theadded value of each stage of production of goods must becounted.

. (an occur as well when transfer payment is included usingincome approach.

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. Un2ai/ a*i-ii's

. There are lots of productive wor!s done in economy butare not paid.

.

E.g. Neighbor helping repair car, friends helping inbabysitting.

. The problem also will exist when some payment are madeusing other goods and not money

.E.g. A friend paying the service price of babysitting bygiving clothes/food, etc.

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!. La*k %0 /aa

. Ni can be misleading as there are not enough information orrecord regarding the economic activities.4

. "llegal activities, such as selling smuggled cigars, li%uor, etcare not recorded in the sellers document as it is illegalactivities.

. 5esides, some productive goods produced are for personalconsumption

. E.g. Farmer will consume some of the rice/vegetables theyproduced.

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4. Esi&ai%n %0 /'2'*iai%n

. Depreciation of machines used in the production process isdifficult to estimate.

. "f the figure of depreciation is overestimated, the N" figurewill be understated.

. To avoid the problem, most policy ma!ers prefer to use theGN" figure instead of net N" figure.

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NOMINAL NI S REAL NI

N%&ina NI is N" figure which is measured based onstandard/current prices of one year.

Means that Nominal N" affected by the changes in the general pricelevel/inflation rate that occurred over the years.

R'a NI is measured by deflating the value of nominal N" accordingto the base year.

The nature of prices of goods and services is that it tends to changeover times and these changes can misleading N" values as we did not!now whether there are any real increase in the %uantity of national

output or not.

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No"inal N& ' 100

Pri!e &n(e'Real N& =


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NOMINAL NI S REAL NI Note that the 6 of national output had not change from 7889:;;;.

Nominal N" denotes the increasing in N" over the 9 years. ;;;

7.;;

7;;>;;;

Nominal N" x 7;; ? >;;; 7;;

>;;;

7.:

7:;@A;;

Nominal N" x 7;; ? >;;; 7:;


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GRO9T" RATE AND PER CAPITAINCOME

i. G%,h Ra'

. =ne of the uses of N" data is to measure economic growth.

. =ne nation is said to experience a satisfactory rate of economicgrowth if there is an increase in real GNP.

ii. P' *a2ia In*%&' (PCI)

. Measures the average income per person per year

. 0eflects the standard of living/welfare of individual

.

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Real GNP1 Real GNP0

Real GNP0

X 100Growth rate =

PC =GNP

Population


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DOMO ARIGATO::

END OF C"APTER ;

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7. ECO 415-Measuring gross domestic output and national income accounting - Copy.pptx