1 national income (gdp and gnp) measurement chapter 2

11

NATIONAL NATIONAL

INCOME (GDP and INCOME (GDP and GNP)GNP)

MEASUREMENTMEASUREMENT

CHAPTER 2

22

What is What is income?income?

33

IncomeIncome is the money earn or is the money earn or paid as a reward for the paid as a reward for the resources owned.resources owned.

For example:For example:

A worker earn income in the A worker earn income in the form form of monthly payment. of monthly payment.

44

What is What is National National Income?Income?

Instead,

55

National IncomeNational Income is defined as:is defined as:

the total value of the total value of final outputsfinal outputs which comprises of goods and which comprises of goods and services services produced by a countryproduced by a country for a particular period of time, for a particular period of time, usually usually a year.a year.

66

Tucker,Tucker, defined national defined national incomeincome

as:as:total income earned by total income earned by resources owners, that is:resources owners, that is: rents, wages, interest and rents, wages, interest and

profit.profit.

77

National IncomeNational Income:: is the total amount of is the total amount of moneymoney

that factors of production that factors of production earnedearned during a year.during a year.

This includes mainly payments of: This includes mainly payments of:

wages, wages, rents, rents, profits and profits and interest of capital.interest of capital.

88

NATIONAL INCOME NATIONAL INCOME

= NATIONAL PRODUCT= NATIONAL PRODUCT

= NATIONAL = NATIONAL EXPENDITUREEXPENDITURE

(NI = NP =NE)(NI = NP =NE)

99

Or Or NI = National Product (NP)NI = National Product (NP)

The national product refers to the The national product refers to the value of output producedvalue of output produced by an by an economy during the course of a economy during the course of a year. year.

Or Or NI = NP = National NI = NP = National ExpenditureExpenditure

refers to the value of money spent on goods and services in the economy in a year.

1010

GDP and GNPGDP and GNP

GDP = Gross Domestic Product, is GDP = Gross Domestic Product, is the value of all final goods and the value of all final goods and services produced by all sectors of services produced by all sectors of the economy the citizens or the economy the citizens or foreign sectors within a country.foreign sectors within a country.

GNP = Gross National Product, is GNP = Gross National Product, is the value of all final goods and the value of all final goods and services produced by all citizens services produced by all citizens of a country (within a country or of a country (within a country or abroad).abroad).

1111

Circular Flow of Circular Flow of Income Model:Income Model:

The basic The basic circular flowcircular flow model model provides provides

a general picture of the a general picture of the interactionsinteractions in terms of : in terms of :

income, output and income, output and expenditureexpenditure among all among all sectorssectors in an economy. in an economy.

1212

Circular Flow of Income Circular Flow of Income Economic ModelsEconomic Models

3 types:3 types: A 2-sector model of circular flowA 2-sector model of circular flow

- Comprises of - Comprises of ‘Households’‘Households’ and and ‘Firms’‘Firms’ sectors sectors A 3-sector model of circular flowA 3-sector model of circular flow

- Comprises of - Comprises of ‘Households’ , ‘Firms’‘Households’ , ‘Firms’ and and

‘‘Government’Government’ sectors sectors A 4-sector model of circular flowA 4-sector model of circular flow

- Comprises of ‘- Comprises of ‘Households’, ‘Firms’, Households’, ‘Firms’,

‘ ‘Government’Government’ and and ‘Foreign’‘Foreign’ sectors sectors

The 2-sector circular flow of national income and expenditure

The 2-sector circular flow of national income and expenditure

Income,Y Income,Y

Expenditure, C Expenditure, C

FIRMSHOUSEHOLDS

Wages, rent, interest, profit

on goods & services

Y = C+I

Factor payment

1414

Assumptions in a Assumptions in a 2 – sector Circular Flow model2 – sector Circular Flow model

All All income receivedincome received by households will by households will entirely entirely be spendbe spend on consumption. on consumption.

The households in the market will entirely The households in the market will entirely purchase purchase all goods and services produced all goods and services produced by firms.by firms.

Therefore,Therefore,

total income = total total income = total expenditure = total outputexpenditure = total output

1515

The 3 sector circular flow of national income and expenditure

The 3 sector circular flow of national income and expenditure

Income,Y Income,Y


Y = C+I+G

FIRMSHOUSEHOLDS

Financial Institutions

GOVERNMENT

Net Taxes Net Taxes

G. Expenditure

G. Expenditure

1616

Assumptions in a 3–sector Assumptions in a 3–sector Circular Flow modelCircular Flow model

C: households is assumed to spent only a portion of their income on consumption.

Part of it as savings in financial institutions and for paying taxes.

I: Investors are getting loans for capital investment thus produced goods and services in an economy.

G: Government expenditure will be made based on tax revenue collected.

t: when government sector is included in the model; tax revenue (t) will be collected (from households – personal income tax, and from

firms – corporate income tax).

1717

The concept of disposable The concept of disposable incomeincome

The household income (Y) that can be The household income (Y) that can be spent by households will now be lesser spent by households will now be lesser after deducting the tax portion (t) paid to after deducting the tax portion (t) paid to government. government.

It is now called as:It is now called as:

disposable income (Yd). disposable income (Yd).

Yd = Y – t.Yd = Y – t.

and Disposable NI = NI – t.and Disposable NI = NI – t.

The 4-sector circular flow of national income and expenditureThe 4-sector circular flow of national income and expenditure

Income,Y Income,Y


Y = C+I+G+(X-M)

FIRMSHOUSEHOLDS

Financial Institutions

GOVERNMENT

Net Taxes

Net Taxes

G. Expenditure

G. Expenditure

FOREIGNERS

1919

Assumptions in a 4 –sector Assumptions in a 4 –sector Circular Flow modelCircular Flow model

Households now supply resources to both Households now supply resources to both domestic and foreign markets. Households domestic and foreign markets. Households also consume both local and imported also consume both local and imported goods.goods.

Firms purchased capital goods and engaged Firms purchased capital goods and engaged foreign workers from abroad to help them foreign workers from abroad to help them produce more new goods and services. They produce more new goods and services. They also exports goods and services produced to also exports goods and services produced to abroad or overseas.abroad or overseas.

Government involves either directly or Government involves either directly or indirectly with foreign sector. They may indirectly with foreign sector. They may import as well as exports goods and services import as well as exports goods and services to abroad. to abroad.

2020

Lets have a Lets have a

5 minutes break5 minutes break

2121

Methods of Measuring Methods of Measuring National IncomeNational Income

NI can be measured using 3 common NI can be measured using 3 common approach:approach:

a)a) Income approachIncome approach

b)b) Output approachOutput approach

c)c) Expenditure approachExpenditure approach

Irrespective of which approach used Irrespective of which approach used in calculating NI, will give us the in calculating NI, will give us the same valuesame value

2222

i) INCOME APPROACHi) INCOME APPROACH National Income is the total money National Income is the total money

values of all incomes received by values of all incomes received by productive persons and enterprises in productive persons and enterprises in the country during the year. the country during the year.

It is the total income of all factors of It is the total income of all factors of production including the income of production including the income of self-employed person, labourers, self-employed person, labourers, capital and land (L,L,K,E)capital and land (L,L,K,E)

2323

““Transfer Payment”Transfer Payment”

should not be included in calculating NI should not be included in calculating NI to avoid double counting problem.to avoid double counting problem.

Transfer payment refers to income Transfer payment refers to income received without any direct contribution received without any direct contribution to the production of goods and services. to the production of goods and services.

is simply transferred from one group or is simply transferred from one group or people to another; without the people to another; without the recipients adding any value to recipients adding any value to production or volume of goods and production or volume of goods and services in the country. services in the country.

2424

e.g; e.g; Transfer PaymentTransfer Payment

PensionsPensions Welfare benefitsWelfare benefits Scholarships Scholarships Unemployment benefitsUnemployment benefits Sale of a second-hand goods e.g. Sale of a second-hand goods e.g.

an existing housean existing house Allowances to housewifeAllowances to housewife Interest on national debtInterest on national debt

2525

Example1:Example1: En. Ahmad previously was a self-employed man with an En. Ahmad previously was a self-employed man with an

income of income of RM1, 500RM1, 500. He later quit from business become . He later quit from business become an employee of a manufacturing company and earn a an employee of a manufacturing company and earn a salary of salary of RM3, 200RM3, 200 per annum. In closing down his per annum. In closing down his business, he had to dismiss two assistants, each business, he had to dismiss two assistants, each previously receiving a salary of previously receiving a salary of RM700RM700 and and RM800 RM800 respectively. Each of the assistants subsequently now respectively. Each of the assistants subsequently now received social security benefits (unemployment benefit) received social security benefits (unemployment benefit) worth worth RM300RM300 per month. What is the net change in national per month. What is the net change in national income?income?

The change in national income as a result of this was:The change in national income as a result of this was: Previously self-employedPreviously self-employed RM1, 500 RM1, 500 Presently employedPresently employed + RM3, 200+ RM3, 200 Dismissal of 2 assistantsDismissal of 2 assistants RM1, 500 RM1, 500

____________________ Net Increase of NI is: + RM 200Net Increase of NI is: + RM 200

Social security benefitSocial security benefit is an example of is an example of transfer payment,transfer payment, so is not included in the calculation of national income.so is not included in the calculation of national income.

2626

Total Domestic Total Domestic vs vs Total Total National IncomeNational Income

Total Domestic IncomeTotal Domestic Income is the total income earned is the total income earned within a territorial or geographic boundary. within a territorial or geographic boundary.

It It includesincludes income earned by its income earned by its citizenscitizens as well as as well as its its non-citizensnon-citizens i.e. foreign workers residing or i.e. foreign workers residing or working in the country.working in the country.

Total National IncomeTotal National Income is the total income earned is the total income earned by citizens of the country irrespective whether the by citizens of the country irrespective whether the citizens reside / working in the country or outside citizens reside / working in the country or outside the country (abroad). the country (abroad).

It will It will excludeexclude all income earned by all income earned by foreign workers foreign workers in the country. in the country.

2727

Example 2:Example 2:Given the following data, find the national

income of country XYZ; Domestic Income RM800m Income paid abroad RM200m Income received from abroad RM180m

Answer: The national income of country XYZ is as follows:

RM800m 200m + 180m = RM780m

2828

Personal Income Personal Income vsvs Personal Personal Disposable IncomeDisposable Income

Personal IncomePersonal Income is the gross receipt of is the gross receipt of income regardless of its source. It can income regardless of its source. It can come from come from productive productive and and non-productivenon-productive sources (transfer payment). And minus sources (transfer payment). And minus the contribution to Employees Provident the contribution to Employees Provident Fund (EPF) and contribution to SOCSO. Fund (EPF) and contribution to SOCSO.

Thus it is totally different from gross Thus it is totally different from gross earning of factor income (GDI or GNI).earning of factor income (GDI or GNI).

Personal Disposable IncomePersonal Disposable Income is gross is gross personal income less by the personal income less by the personal personal income taxincome tax paid. paid.

2929

Income ApproachIncome ApproachThe components of this approach include:The components of this approach include: Wages and salaries RM xxxWages and salaries RM xxx Interest and dividends xxxInterest and dividends xxx Rent and imputed rent xxxRent and imputed rent xxx Profits: distributed and undistributed profits, xxx Profits: distributed and undistributed profits, xxx

income of self-employed xxxincome of self-employed xxx

= Gross Domestic Income = Gross Domestic Income (at factor cost) XXXX(at factor cost) XXXX Income paid abroad xxxIncome paid abroad xxx

++ Income received from abroad xxxIncome received from abroad xxx = Gross National Income = Gross National Income

XXXXXXXX Depreciation or capital consumption xxxDepreciation or capital consumption xxx

= Net National Income XXXX= Net National Income XXXX (OR NATIONAL INCOME)(OR NATIONAL INCOME)

3030

ii) OUTPUT APPROACHii) OUTPUT APPROACH

Also known as Product Also known as Product Approach.Approach.

National Income (=GNP) is National Income (=GNP) is equivalent to the equivalent to the money value of money value of all goods and services producedall goods and services produced by all sectors in the country by all sectors in the country during a year. during a year.

3131

The problem of double The problem of double counting:counting: To avoid double counting, we To avoid double counting, we

only only sum-upsum-up all the all the “value-“value-added”added” of each sectors or at of each sectors or at each stage of production to give each stage of production to give us the national income value.us the national income value.

3232

Value-added conceptValue-added concept To avoid double counting, calculation must To avoid double counting, calculation must

be based on either one of the followings:be based on either one of the followings:a)a) Measure only the total market Measure only the total market value of value of all final goods and all final goods and servicesservices produced in the produced in the country.country.

OROR

b)b) Calculate national output based on the Calculate national output based on the value value added.added.

EXAMPLE:

Firm Stage of Production Purchasing Selling Value

____ ________________ Price (RM) Price (RM) Added (RM)

A Landowner sells trees - 100 100 to sawmill ownerB Sawmill owner cut into 100 180

80 timber sheets to furniture manufacturerC furniture manufacturer 180 290

110 turns timber sheets into furniture and sells to retailerD retailer sells furniture to final 290 420

130 consumer TOTAL VALUE 570 990

420

Total value added = Total value of Sales – Cost of intermediate goods = 990 – 570 = 420

3434

The concept of Market Price The concept of Market Price and Factor Costand Factor Cost

In most cases, In most cases, Market Price (MP) > Factor cost Market Price (MP) > Factor cost (FC)(FC)

Market Price Market Price = FC + indirect taxes – subsidies = FC + indirect taxes – subsidies

OROR

Factor CostFactor Cost = MP – indirect taxes + subsidies = MP – indirect taxes + subsidies

3535

Output ApproachOutput ApproachThe components are: The components are: RMRMThe total value of final goods and services in the The total value of final goods and services in the

economy or the total sum of “value-added” of all economy or the total sum of “value-added” of all industry or stage of production. industry or stage of production.

= Gross Domestic Product at market price = Gross Domestic Product at market price XXXX XXXX(GDP at mp)(GDP at mp)

Income paid abroad xxxIncome paid abroad xxx ++ Income received from abroad xxxIncome received from abroad xxx= Gross National Product at market price = Gross National Product at market price XXXX XXXX

(GNP at mp)(GNP at mp) Indirect taxes or taxes on expenditure xxxIndirect taxes or taxes on expenditure xxx ++ Subsidies xxxSubsidies xxx= Gross National Product at factor cost XXXX= Gross National Product at factor cost XXXX

(GNP at fc)(GNP at fc) Depreciation or capital consumption xxxDepreciation or capital consumption xxx= Net National Product at factor cost XXXX= Net National Product at factor cost XXXX (NNP at fc OR NATIONAL INCOME)(NNP at fc OR NATIONAL INCOME)

3636

iii) EXPENDITURE iii) EXPENDITURE APPROACH APPROACH

4 components included here:4 components included here:

a)a) Household or consumer expenditure on Household or consumer expenditure on consumption goods, (C).consumption goods, (C).b)b) Firm or producer expenditure of capital Firm or producer expenditure of capital goods. Also known as gross investment or goods. Also known as gross investment or gross private capital formation (I). gross private capital formation (I). c)c) Government expenditure on goods and Government expenditure on goods and services, excluding transfer payment (G). services, excluding transfer payment (G).

d) Expenditure on exports and imports (X – M).d) Expenditure on exports and imports (X – M).

Y = C + I + G + (X – M)

3737

Gross Gross vsvs Net Net InvestmentInvestment

Gross InvestmentGross Investment is the expenditure on new is the expenditure on new construction, purchase on new equipment and construction, purchase on new equipment and change in stock change in stock

Net InvestmentNet Investment is gross investment minus is gross investment minus depreciation of capital. depreciation of capital.

DepreciationDepreciation (capital consumption) is defined as (capital consumption) is defined as an allowance that is put aside for machinery an allowance that is put aside for machinery wears out and stocks used up due to its obsolete wears out and stocks used up due to its obsolete and deteriorated nature after being used for some and deteriorated nature after being used for some time. time.

Net InvestmentNet Investment = = Gross Investment – Depreciation of Gross Investment – Depreciation of

capitalcapital

3838

Expenditure ApproachExpenditure ApproachThe components include;The components include; RMRM the household expenditure (C), firm expenditure the household expenditure (C), firm expenditure or gross investment (I) and government or gross investment (I) and government expenditure (G).expenditure (G). + or – change in stock xxx + or – change in stock xxx

=Total Domestic Expenditure at market price XXXX=Total Domestic Expenditure at market price XXXX(TDE at mp)(TDE at mp)

+ Exports and + Exports and Imports xxx Imports xxx ==Gross Domestic Expenditure at market price XXXXGross Domestic Expenditure at market price XXXX

(GDE at mp) (GDE at mp) Income paid abroad xxxIncome paid abroad xxx + Income received from abroad xxx+ Income received from abroad xxx==Gross National Expenditure at market price XXXXGross National Expenditure at market price XXXX

(GNE at mp(GNE at mp)) Indirect taxes xxxIndirect taxes xxx + Subsidies xxx+ Subsidies xxx==Gross National Expenditure at factor cost XXXX Gross National Expenditure at factor cost XXXX

(GNE at fc)(GNE at fc) Depreciation or capital consumption xxxDepreciation or capital consumption xxx

== Net National Expenditure at factor cost XXXXNet National Expenditure at factor cost XXXX (NNE at fc) (OR NATIONAL INCOME)(NNE at fc) (OR NATIONAL INCOME)

3939

Few things to Few things to remember:remember:1) To change from market price to factor

cost: minus indirect tax plus subsidies.

DIRECT TAXESDIRECT TAXES INDIRECT INDIRECT TAXESTAXES

Personal Income TaxPersonal Income Tax

Business/ Corporate Business/ Corporate TaxTax

Profit TaxProfit Tax

Expenditure or Expenditure or Consumption TaxConsumption Tax

Custom dutiesCustom duties

Export Tax Export Tax

Import TaxImport Tax

TariffTariff

Services TaxServices Tax

4040

Few things to Few things to remember:remember:

2) To change from Domestic to National value: plus or minus NPIFA

3) To change from Gross to Net value: minus capital consumption.

4) To change from NI to Personal Income (PI): plus transfer payment and any benefits minus any contribution (EPF, SOCSO)

5) To change from PI to DPI: minus income tax

4242

Income ApproachIncome ApproachGiven the information:Given the information:

RM millionRM million

Total wages and salaries receivedTotal wages and salaries received 255,650 255,650

Total interest and dividends receivedTotal interest and dividends received 10,000 10,000

Total rent and imputed rentTotal rent and imputed rent 80,880 80,880

Gross trading profits from companiesGross trading profits from companies 65,500 65,500

Total income of self-employedTotal income of self-employed 33,70033,700

Income paid abroadIncome paid abroad 54,345 54,345

IIncome received from abroadncome received from abroad 76,680 76,680

Capital consumption Capital consumption 445

Find: i) GDP at factor cost ii) GNP at factor cost iii) NI

4343

Answer: Income Answer: Income ApproachApproach

RM millionRM million

Total wages and salaries receivedTotal wages and salaries received 255,650 255,650

Total interest and dividends receivedTotal interest and dividends received 10,000 10,000

Total rent and imputed rentTotal rent and imputed rent 80,880 80,880

Gross trading profits from companiesGross trading profits from companies 65,500 65,500

Total income of self-employedTotal income of self-employed 33,70033,700

GDI fc (GDP fc)GDI fc (GDP fc) 445,730 445,730 LessLess income paid abroad income paid abroad (54,345) (54,345) AddAdd income received from abroad income received from abroad 76,68076,680

GNI fc (GNP fc)GNI fc (GNP fc) 468,065 468,065 LessLess Depreciation on capital consumption Depreciation on capital consumption (445)(445) NNI fcNNI fc

467,620 467,620

4444

Output Approach Output Approach RM million Agriculture, forestry and fishing 4,296Mining and quarrying 6,700Manufacturing 28,965 Construction 15,550Services 13,220Net exports 3,000Appreciation in stock 2,000

Income paid abroad 15,432 Income received from abroad 17,66

Indirect taxes 599 Subsidies 333 Depreciation of capital 1,545

Compute the value for: i) GDP at market price ii) GNP at market price iii) GNP at factor cost iv) NI

4545

Answer: Output ApproachAnswer: Output ApproachAgriculture, forestry and fishing 4,296Mining and quarrying 6,700Manufacturing 28,965 Construction 15,550Services 13,220Net exports 3,000Appreciation in stock (2,000) GDP mp 69,731

Less income paid abroad (15,432) Add income received from abroad 17,66 GNP mp 70,965 Less indirect taxes (599) Add subsidies 333 GNP fc 70,699 Less depreciation (1,545)

NNP fc (NNI) 69,154

4646

Expenditure Approach Expenditure Approach RM millionTotal consumer expenditure (C) 50,000

Gross investment (I) 20,000Government expenditure (G) 18,500Add exports (X) 9,000Less imports (M) ( 8,565)Change in stock 1,000 Net factor Income from abroad 250

Expenditure taxes 870 Subsidies 695 Capital consumption 2,750

Given the information above, calculate the values for: i) GDP at market price ii) GNP at market price iii) GNP at factor cost iv) NI

4747

Answer: Expenditure Answer: Expenditure ApproachApproach RM millionTotal consumer expenditure (C) 50,000Gross investment (I) 20,000Government expenditure (G) 18,500Add exports (X) 9,000Less imports (M) ( 8,565)Change in stock 1,000

GDE mp (GDP mp) 89,935 Less Income paid abroad (3,700)

Add income received from abroad 3,950 GNE mp (GNP mp) 90,185 Less Indirect taxes (870) Add subsidies 695 GNE fc (GNP fc) 90,010 Less Depreciation (2,750) NNI fc (NI) 87,260

4848

Uses ofUses of National National IncomeIncome

4949

Uses and Importance of National Uses and Importance of National

IncomeIncome Useful in measuring the Useful in measuring the standard of livingstandard of living of a nation of a nation

through estimating per capita income of the nation.through estimating per capita income of the nation.

5050



through estimating per capita income of the nation.through estimating per capita income of the nation. Time series Time series comparison (year to year). comparison (year to year). Measuring Measuring

growth of the economy.growth of the economy.

5151




growth of the economy.growth of the economy. Comparison between two or more countriesComparison between two or more countries can be can be

made. made.

5252





made. made. Able to know and analyze the contribution made and Able to know and analyze the contribution made and

performance performance by each production sector in the by each production sector in the economy and thus taken ample step for rectificationeconomy and thus taken ample step for rectification

5353







Useful in measuring Useful in measuring inequalities in the distribution of inequalities in the distribution of income.income.

5454








Useful in revealing the Useful in revealing the expenditure patternexpenditure pattern of a of a country.country.

5555









Useful in measuring the level and pattern of Useful in measuring the level and pattern of investment.investment.

5656









Useful in measuring the level and pattern of Useful in measuring the level and pattern of investment.investment.

Balance of paymentsBalance of payments pattern. pattern.

5757






performance performance by each production sector in the economy by each production sector in the economy and thus taken ample step for rectificationand thus taken ample step for rectification


Useful in revealing the Useful in revealing the expenditure patternexpenditure pattern of a country. of a country. Useful in measuring the level and pattern of Useful in measuring the level and pattern of investment.investment. Balance of paymentsBalance of payments pattern. pattern. National income as an indicator of success or failure of National income as an indicator of success or failure of

national planningnational planning..

5858

Gross and Net Gross and Net InvestmentInvestment Gross investmentGross investment is the total is the total

amount spent on purchases of amount spent on purchases of new capital and on replacing new capital and on replacing depreciated capital.depreciated capital.

Net investmentNet investment is the change in is the change in the stock of capital and equals the stock of capital and equals gross investment minus gross investment minus depreciation.depreciation.

5959

Economic GrowthEconomic Growth

eeº = º = GDPGDP11 – GDP – GDP00 X 100 X 100

GDPGDP00

eeº = rº = rGNPGNP11 – rGNP – rGNP00 X 100 X 100

rGNPrGNP00

Higher economic growth shows higher economic activities and performance.

6060

Real GNP:Real GNP:

Real GNP = Real GNP = Price IndexPrice Index00 X Nominal X Nominal GNPGNP11

Price IndexPrice Index11

Nominal GNP is the current value of GNP according to the price in that particular year, in which might has experience a price rise from previous years because of inflation.

Real GNP or GDP shows a better value of measurement for comparison purposes, because it has deflate the value from the problem of inflation.

6161

The Difference The Difference between between nominalnominal and and real incomereal income

Nominal IncomeNominal Income would be the actual wage or salary that would be the actual wage or salary that is earned currently. is earned currently. The Nominal Gross Domestic The Nominal Gross Domestic Product measures the value of all the goods and Product measures the value of all the goods and services produced expressed in current prices.services produced expressed in current prices.

Nominal GDP of Malaysia for the year 2001 is RM334.6bNominal GDP of Malaysia for the year 2001 is RM334.6b

6262

The Difference The Difference between between nominalnominal and and real incomereal income

Nominal IncomeNominal Income would be the actual wage or salary that is earned would be the actual wage or salary that is earned currently. currently. The Nominal Gross Domestic Product measures the The Nominal Gross Domestic Product measures the value of all the goods and services produced expressed in value of all the goods and services produced expressed in current prices.current prices.

Nominal GDP of Malaysia for the year 2001 is RM334.6bNominal GDP of Malaysia for the year 2001 is RM334.6b

Real IncomeReal Income would be the income that has been deducted with would be the income that has been deducted with the reduction in the “purchasing power” that the wage or salary the reduction in the “purchasing power” that the wage or salary has in the market place (i.e. rate of inflation is 3%). has in the market place (i.e. rate of inflation is 3%). Real Gross Real Gross Domestic Product measures the value of all the goods and Domestic Product measures the value of all the goods and services produced expressed in the prices of some base year.services produced expressed in the prices of some base year. Real GDP of Malaysia for the year 2001 is RM210.5bReal GDP of Malaysia for the year 2001 is RM210.5b

6363

per capita incomeper capita income is defined as their total personal income is defined as their total personal income

divided by the number of people in the divided by the number of people in the country. country.

often used as a measure of the wealth of the often used as a measure of the wealth of the population of a nation, particularly in population of a nation, particularly in comparison to other nations.comparison to other nations.

usually expressed in terms of a commonly-usually expressed in terms of a commonly-used international currency such as the Euro used international currency such as the Euro or United States dollar.or United States dollar.

Malaysia’s per capita income for the year 2001 Malaysia’s per capita income for the year 2001 is US$3,392 or RM12,867.is US$3,392 or RM12,867.

6464

2 major problems 2 major problems in measuring national in measuring national incomeincome

i) PRACTICAL PROBLEMSi) PRACTICAL PROBLEMS a) a) Problem of illiteracy Problem of illiteracy b)b) Problem of expertiseProblem of expertisec)c) Problem of inaccessibilityProblem of inaccessibilityd)d) Lack of sophisticated Lack of sophisticated

software machineries.software machineries.e)e) Problem of false Problem of false

informationinformation

6565

ii) CONCEPTUAL PROBLEMSii) CONCEPTUAL PROBLEMS

a)a) Arbitrary definitionArbitrary definition

b)b) Problems in estimating the Problems in estimating the value of depreciation, value of depreciation,

imputed rent, etc.imputed rent, etc.

c)c) Problem of double countingProblem of double counting

d)d) Problem of measuring Problem of measuring quality quality

6666

THANK YOUTHANK YOU

1 national income (gdp and gnp) measurement chapter 2

Documents

national income gdp

national income tucker

total income

national product np

gross national product

circular flow of income

national expenditure

value of money