National income determination

In other words, they can be used to cross-check reliability of each other.Wages, salaries and all such earnings of person employed, pensions are excluded. c).Suppose the income level is OY 2 which is above the equilibrium income level OY.The quantity of labour has double influence since labour is both a factor of production as well as the consumer of what is produced.

Share of various sectors can be studied to find out structural defects and weaknesses of the economy.On the other hand, taxes are leakages in the national income like savings because they tend to reduce the demand for consumer goods.This is shown in Figure 6 where C is the consumption function.

National income definition, the total net earnings from the production of goods and services in a country over a period of time, usually one year, and consisting.Equality of Saving and Investment: The equilibrium level of income can also be shown by the equality of the saving and investment functions.However, it will stop at certain points to allow you to review the information being presented at your own pace.

The total net value of all goods and services produced within a nation over a specified period of time, representing the sum of wages, profits.Question No.1-3 and 15-19 are very short answer questions carrying 1 mark each.

Practice Questions: National Income Accounting

In each sector we make an inventory of goods produced and find out the end product making an addition to the value of goods.

Business Economics distance learning course-Economics is the study of scarcity and the.

National Income Determination (GDP) - Homework Minutes

This figure thus arrived at will give us G.N.P. The merit of this method is that it believes in the identity between national expenditure, income and total product.

For this, we relax the assumptions that there are no exports or imports and government expenditures.Equilibrium level of national income is determined by that point where aggregate demand is equal to aggregate supply.Determination of National Income: Logical Identity of Saving and Investment: The classical economists were of the view that saving and investment are always equal.Therefore, for calculating it, such payments which are not made for any productive service is not included.First, take the case when aggregate supply exceeds aggregate demand.To stop further reduction in their inventories, they will increase production.It includes all the economic productions in the economy from apples and automobiles to zinc and zippers. G.N.P. is defined as the money value of the national production for any given period.

The money value of the final goods and services produced in the economy to avoid double counting.Incomplete government records: due to ignorance and illiteracy in backward areas, the data may not be available and if available, may be unreliable.Answer: There are three methods by which national income can be calculated-.Double-counting: the error of double-counting is another obstacle to be avoided in the calculation of national income.The consumption function is shown by the slope of the C curve in Fig. 1 which is MPC (marginal propensity to consume).

Expenditure by government on consumption as well as capital goods.Abstract: This note shows that the same model that explains consumption and investment.

Two-Sector Model: A two-sector model of income determination of an economy consists only of domestic and business sectors.Indicator of economic welfare: it enables us to study per capita income or per capita consumption which are general indicators of economic growth.

Problems in industrial sector: data relating to output, cost, etc. are available only in big units.Things to note about the Consumption Function The consumption function slopes upwards (i.e. as national income rises, so does consumption).NATIONAL INCOME DETERMINATION WORK SCHEDULE (TEXT CHAPTER: 8) DAY 1: Objective: Create a circular flow of demand in the Macroeconomy and identify leakages and.The value added of a firm is its output less whatever it purchases from other firms such as raw materials, and other inputs.Exports are injections because they increase the demand for goods in the same economy.How will the equilibrium level of income be restored in the two situations.To this we add money received from abroad through trade and other payments.Since everything has to be equated to the money value, services produced in economy for love of humanity, affection and philosophy could not be taken into consideration in calculating national income.

National income figures help governments in planning, policy making, preparation of budgets and forecasting the level of economic activity.It does not include capital consumption allowance government business and individual transfer payments and indirect taxes.It is a closed economy in which there are no exports or imports. 4. There are no corporate firms in the economy so that there are no corporate undistributed profits. 5. There are no business taxes, no income taxes and no social security taxes so that disposable personal income equals NNP. 6. There are no transfer payments.

Since national income constitutes a quantitative measure of economics activity rather than verbal description.We explain these two approaches one by one with the help of Figure 1 (A) and (B).Problems in agricultural sector: in agricultural activities there is a good deal of guess work in data relating to cropwise production and in figures relating to animals and forest products.This is shown by OY 2 level of income in Panel (A) of the figure.

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