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    by: kumar

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    1 : National Income Accounting:Important Identities
    2 : Measuring the Production, Income, and Spending of Nations
    3 : National Income Accounts: Provide the formal structure for our macro-theory models Aggregate Demand….aggregate income..consumed or invested Aggregate Supply….Total output..paid as wages, interest and dividends In equilibrium….Aggregate Demand=Aggregate Supply (growth) Inputs=Outputs Real output price level Broad magnitudes to characterize the economy
    4 : Basic Measures: Gross Domestic Product (GDP) is the value of final goods and services produced in the country within a given period Notable terms ?final goods ?Intermediate goods Value Added Past output vs. current outputs Measure of welfare Use of resources to avoid bads such as crime Improvement in the quality in the country
    5 : Factors of production….labor, capital, land ?GDP= sum of payments to labor, capital, land and profits ?Gross National Product (GNP) GDP+receipts from abroad made as factor payments to domestically owned factors of production.
    6 : Net Domestic Product GPP minus depreciation Depreciation is usually 11% NDP=89% of GDP National Income NDP-Indirect taxes that Business pay Indirect taxes that Business pay nearly 10% NI is nearly 90% of NDP
    7 : PI is the total income received – whether it is earned or unearned – by the households of the economy before the payment of personal taxes. It is found by adding transfer payments to and subtracting social security contributions ,corporate income taxes and undistributed corporate profits from the NI. DI is the total income available to households after the payment of personal taxes. It is equal to PI less personal taxes and also equal to personal consumption expenditures plus personal saving.
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    9 : GDP: An important and versatile concept We will see that GDP measures § total income § total expenditure § total output § the sum of value-added at all stages in the production of final goods
    10 : How to measure GDP? There are three approaches to the measurement of GDP: spending, income, and production.
    11 : Spending Approach The spending approach divides GDP into four areas: households (consumption) (C) businesses (investment) (I) government (G) and foreigners (net exports) (X-IM).
    12 : Investment (I) def1: spending on [the factor of production] capital. def2: spending on goods bought for future use. Includes: § business fixed investment spending on plant and equipment that firms will use to produce other goods & services § residential fixed investment spending on housing units by consumers and landlords § inventory investment the change in the value of all firms’ inventories
    13 : Investment vs. Capital § Capital is one of the factors of production. At any given moment, the economy has a certain overall stock of capital. § Investment is spending on new capital. Investment vs. Capital Example (assumes no depreciation): § 1/1/2002: economy has $500b worth of capital § during 2002: investment = $37b § 1/1/2003: economy will have $537b worth of capital
    14 : Stocks vs. Flows Flow Stock More examples: stock flow a person’s wealth a person’s saving # of people with # of new college college degrees graduates the govt. debt the govt. budget deficit
    15 : A question for you: Suppose a firm § produces $10 million worth of final goods § but only sells $9 million worth. Does this violate the expenditure = output identity?
    16 : Why output = expenditure § Unsold output goes into inventory, and is counted as “inventory investment”… . ….whether the inventory buildup was intentional or not. § In effect, we are assuming that firms purchase their unsold output.
    17 : The income approach The income approach divides GDP according to who receives the income from the spending flow. In addition to aggregate income, national income and personal income are also used as measures of income.
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    19 : The income approach The Income Components Include: Wages and salaries Corporate profits Proprietors income (the profits of partnerships and soley owned businesses, like a family restaurant) Farm income Rent Interest Sales taxes Depreciation (the amount of capital that has worn out during the year)

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