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Economics – National Income

National Income also refers to a total value of expenditure by all groups of a population on goods and service produced by an economy in one year. Moreover, national income is also the total value of income received by all factors of production such as labor, land, capital and entrepreneurs in a nation in a certain period of time, usually one year. The measures related to national income: Gross Domestic Product Gross domestic product (GAP) is the total final value of goods and services created by factors of production available within a nation in one year.

The Value of GAP does not aka into account whether the factors of production are owned by local citizens or by citizens of other nations. Final goods are goods that are ready to be used by the end user. Intermediate goods are goods that are used in the production of final goods. Therefore, the values of intermediate goods are excluded from the calculation of GAP, as the values are included in the price of the final good. GAP can be measured at market price or at factor cost. GAP at market price is the factor cost is the assessment of the nation’s production based on

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prices of factors of production.

The difference between GAP at market price and GAP at factor cost is the indirect taxation and subordination. When indirect taxes are charged to good, the gross domestic product at market price is greater than the gross domestic product factor cost. However, if the production of a good is subsidized, GAP at factor cost is greater than GAP at market price. Gross National Product Gross national product (GNP) is the total final value of goods and services produced by factors of production owned by citizens of the nation, regardless of where they are located, within one year.

GNP excludes the contribution to production made by foreign citizens working in the nation. Gross national product can also be measured at market price or at factor cost. GNP at market price is the total market value of final goods and services produced by all the factors of production owned by the nation within one year. GNP at factor cost is the nation’s total production assessed based on the price that the produces pay to the owners of the factors of production. The difference between GNP at market price and GNP at factor cost is the indirect taxation and subordination.

When indirect taxes are harmed to a good, GNP at market price is greater than GNP at factor cost. However, if the production of a good is subsidized, GNP at factor cost is greater than GNP at market price. GAP + net property income from abroad = Gross national product The word ‘gross’ indicates that no deduction has been made for that part of total output that is needed to maintain the nation’s stock of capital assets. The value of the output required to replace obsolete and worn-out capital is known as depreciation or capital consumption.

The total output of capital goods is known as gross investment ND the net additions to the stock of capital is known as net investment. Therefore, we have, Gross investment – depreciation = net investment Gross national product – depreciation = net national product or national income However, in practice it is impossible to accurately estimate the value of depreciation. Therefore GNP, rather than NP, is used to make comparisons over time and between countries. Net National Product Net national product (NP) is obtained when the value of depreciation is subtracted from the GNP.

Depreciation occurs when capital equipment use in the production recess becomes obsolete after a certain period of usage. NP = GNP – depreciation calculate NP at market price is: NP (market price) = GNP (market price) – depreciation NP (market price) = NP (factor cost) + indirect taxes – subsidies The formula to calculate NP at factor cost is: NP (factor cost) = GNP (factor cost) – depreciation NP (factor cost) = NP (market price) + subsidies – indirect taxes BACKGROUND OF NATIONAL INCOME National income is gross domestic income for the country.

The gross domestic product (GAP) or gross domestic income (GUI) is one of the measures of national income and output. GAP can be defined in three ways, which should give identical results. First, it is equal to the total expenditures for final goods and services produced within the country in a specified period of time (usually a 365-day year). Second, it is equal to the sum of the value added at every stage of production by all the industries, plus taxes and minus subsidies on products.

Third, it is equal to the sum of the income generated by production like compensation of employees, taxes on production and imports less subsidies, and gross operating surplus. Malaysia GAP The Gross Domestic Product (GAP) in Malaysia was worth 303. 53 billion US dollars in 2012. The GAP value of Malaysia represents 0. 49 percent of the world economy. GAP in Malaysia reported by the ‘The World Bank Group. ‘ Malaysia GAP averaged 65. 56 USED Billion from 1960 until 2012, reaching an all time high of 303. 53 USED Billion in December of 2012 and a record low of 2. 42 USED Billion in December of 1961.

The gross domestic product (GAP) measures national income and output for a given country’s economy. The gross domestic product (GAP) is equal to the total expenditures for all final goods and services produced within the country in a stipulated period of time. The graph below shows the actual values, historical data, forecast, chart, statistics, economic calendar and news. GAP can be derive from a few components: 1. Import and exports. 2. Tax by government on goods such as service tax and government tax. 3. Subsidiary savings, for example, if petrol Ron 95 original price is RUM. 0 cents per litter, if government subsidies ROOM. 90 cents, we have to pay RMI . 90 per litter. But if the country and contribute to the GAP. 4. Jobs creation – the lower the employment rate, more people got money to spend hence encourages more tax to collect. 5. Monetary polices – government may impose low interest rates in bank to encourage people to take out money from the bank and to spend which contributes to the country’s GAP. National income can be measured in three ways and they should all give the same total, which are the income method, expenditure method and output method.

The Income Method This measures the national income by adding together all the incomes earned by the factors of production employed in producing the national output. For example, rent, wage, interest and profit. However, we must only include the income that has been earned for services rendered and where there is some corresponding value of output. Transfer payments must be excluded. This is because theses are payments received without any contribution to the current output of goods and service in the country. They are simply transfers of income within the community.

For example, pensions, unemployment, payments, gifts of money from one person to another. Stock appreciation must also be excluded since there has been no real increase in he value of output. The rise in the value of the stocks is due only to an increase in prices as a result of inflation. Imputed rent must be included. This is a national figure representing the payments that could be received by the owners of houses if they were to be rented out. As they are owner occupied, an imputed rent has to be used so that the national income of the country will not fall when more people stay in their own houses.

The Expenditure Method This method of measurement adds together all the expenditure spent on purchasing the national output. However, it is only expenditure on the final output that must be added, in order to avoid double counting. So, in the case of a loaf of bread, only the final expenditure of the consumer on the loaf must be counted, not the intermediate expenditure by the baker for his flour and yeast. Additionally, it is only expenditure on current output that must be included. Second already received payment when theses goods were produced.

Therefore, they must be excluded. The available statistics provide us with national expenditure at market prices. These are the actual prices consumers and firms pay for the goods and reveries purchased. They underestimate national income to the extent that they include subsidies paid to firms but overestimate national income when they include indirect taxes. To adjust them to factor cost, we must add subsidy and subtract indirect taxes. To take account of international transactions, we must include exports and exclude imports.

This is because when overseas residents buy our goods and services, the expenditure relates to economic activity that has taken place in this country and must be included. In the same way, the value of our imports of goods and services just be deducted since this relates to economic activity that took place outside this country. An estimated value of the addition to stocks and work in progress must be added, as incomes will have been earned in the production of these unsold or incomplete goods. The Output Method This involves adding up the value of all the goods and services produced in the country.

Under this method, the whole economy is divided into sectors like manufacturing, agriculture, banking, mining, construction, and the value of the output of each sector is then added together. To avoid double counting, we must sum up the value added at each stage of production or add together the final value of output produced. The three measures of the gross domestic product should produce the same answer because they are measuring the same cycle of economic activity. The fact that they do not is due to the many errors and omissions in the data collected.

The difference between these estimates is the residual error and it is placed in the income and output measures to bring them into line with the expenditure figure. It does not imply that the expenditure estimates are more accurate. There are many difficulties in measuring national income of a country accurately. The difficulties involved in national income accounting are both conceptual and static in nature. Some of these difficulties involved in the measurement of national income are discussed below: 1 . Difficulty in assessment – some goods and services value can’t be assessed easily.

For example, the value of different cows and sheep’s is very difficult because generally is difficult to know what price to fix for the cows and sheep’s, and it vary with the types involved. Therefore, it is hard to fix the price. . Problem of double counting – while computing the national income there is always a danger of double counting. For example, they are sometimes that intermediate goods may be considered as final goods. Only final goods and services should be included in the national income accounting.

But, it is very difficult to distinguish between final goods and intermediate goods and services. An intermediate goods and service used for final consumption. The difference between final goods and services and intermediate goods and services depends on the use of those goods and services so there are capabilities of double counting. 3. Price changes – it is one of the major problems of national income accounting. For example, National income is the money value of goods and services. Money value depends on market price, which often changes.

The problem of changing prices is one of the major problems of national income accounting. Due to price rises the value of national income for particular year appends to increase even when the production is decreasing. Problems of Comparison of National Income between Countries There are several calculation problems in comparing the national income between entries. 1 . Concepts of national income a) When per capita income is used as the basis of comparison, the different concepts of national income practiced by different countries must be taken into account. ) Some countries include the total values of final goods and services produced by different economic sectors in the calculation of national income, while others include calculation of national income. C) The different concepts of national income practiced by different countries will result an inaccurate comparison of national income between the countries. 2. Working hours ) National productivity does not include the rest hours of its citizens. Countries that practice longer working hours will have a higher per capita income. ) A high standard of living and level of social welfare may not be indicated by a high per capita income. Shorter working hours and longer holiday periods also indicate a high standard of living. 3. Foreign exchange rates a) Even though comparison of national income between countries is based on a general currency, the fluctuating exchange rates between countries will result in an inaccurate representation of the country’s standard of living. B) Fluctuations in exchange rates will cause the per capita income to change correspondingly, but the country’s standard of living may not change at the same rate.

Conclusion National Income is the total value of all goods or services produced or created by a nation within a certain period of time, usually one year. It refers to the total value of expenditure by all groups of a population on goods and services produced by an economy in one year. Moreover, national income is also the total value of income received by all factors of production such as labor, land , capital and entrepreneurs in a nation, in a certain period of time, and usually one year.

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