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MACROECONOMICS MEASURING NATIONAL INCOME Economics – A Course Companion Blink & Dorton , 2007, p147-157. Introduction to Macroeconomics. Macroeconomics is concerned with the allocation of a nation’s resources and is concerned with five main variables: Economic Growth Employment
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MEASURING NATIONAL INCOME
Economics – A Course Companion
Blink & Dorton, 2007, p147-157
Macroeconomics is concerned with the
allocation of a nation’s resources and is
concerned with five main variables:
The firms hire the factors of production from households and use these factors to produce the nation’s output of goods and services.
Households provide the factors of production (1) and receive income (2). They buy the goods and services (3) produced by the firms by using the income received (4) and in this way the income circulates throughout the economy.
There are several injections into the circular flow:
Most government spending is an injection, BUT.. Transfer Payments (eg: Pensions) are not an injection.
Gross Domestic Product – Output Method
Gross Domestic Product – Expenditure Method
GDP = C + I + G + (X-M).
National Output =
National Income =
Gross Domestic Product
Eg: If an Indian Multinational company (MNC) is operating in Canada earning profits, this income is included in Canadian GDP and not the Indian GDP.
net property income from
This is due to several factors:
GDP - Depreciation
GDP deflatorand the value is known as real GDP.
Real GDP =
Nominal GDP adjusted for
Report Card for a Country
Develop Models & Forecasts about the Future
Business Forecasts about the Future Demand
Evaluating the Standard of Living in a Country
Short Response Questions
Using a diagram of the circular flow of income model, explain three ways that income can be measured.
2. Distinguish between GDP, GNP and NNP. (10 marks)
1a. Explain three uses of national income statistics. (10 marks)
1b. Evaluate the use of GDP figures as means of
comparing countries. (15 marks)