• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Economics Assignment Methods of Calculating National Income

Extracts from this document...


Economics Assignment MEASURING NATIONAL INCOME Methods of Calculating National Income * There are three methods of calculating national income: * The expenditure method: o This adds up all the spending in the economy: C + I + G + X - M. o It is called Gross Domestic Product (GDP) at market prices and includes: * C: Consumption * I: Investment which includes: Planned investment in capital, Unplanned increases in stocks or inventories * G: Govt. spending on goods and services. Because they are often provided free of charge (no market value), they are valued at cost. * X: Exports: the domestic economy receives the money * M: Imports: these must be subtracted because it is spending on goods and services from outside the domestic economy. * The income method: adds up all the sources of income in the domestic economy. o Transfer payments (pensions, unemployment and welfare benefits) are excluded: no good or service is produced for the income. o Income includes: * Wages and salaries * Self-employed income * Profits: divided into dividends given to shareholders and undistributed or earnings retained by the firm * Rent ...read more.


o Capital equipment, machinery and buildings, and residential housing o Gross investment consists of: * Net investment (new physical capital and stocks or inventories) * Depreciation or capital consumption: repair and maintenance to existing stocks of capital or replacement of worn out capital. * Net Domestic Product (NDP) = GDP - depreciation. Because depreciation is an estimate, most economists prefer to work with GDP. * Gross National Product (GNP) includes the value of final goods and services produced by factors owned by domestic households all over the world: GNP = GDP + Foreign investment income - investment income paid to foreigners o For developing countries, GDP tends to exceed GNP: factor payments made to foreigners exceed factor payments received from foreigners o For industrialized countries, GDP is smaller than GNP: factor payments received from foreign countries are larger than what is paid to foreigners. * Personal Disposable Income is obtained by: GNP = GDP at market prices + net property income from foreign economies GNP at factor cost = GNP at market prices - indirect taxes + subsidies Net National Product (NNP) ...read more.


* Quality of life: pollution regulations or more vacation time can lead to a fall in GDP but lead to an increase in the quality of life; how should we adjust? * Govt. services: how do we value national defense or govt. medical services? We count them at cost which may be too high or too low an estimate. Comparing Across Countries * Purchasing power parity: rather than use a single currency to compare we convert to PPPs which measure the actual purchasing power of domestic income in terms of what it can buy within the country. * Accounting systems are different amongst countries. Many LDCs cannot afford comprehensive systems and use a lot of guesswork or estimation to fill the gaps. * Climate differences: some countries spend more on energy to heat or cool houses and offices. * There may be considerable differences in the distribution of income, the size of the non-market sector, the balance between consumption and capital goods production and between production of consumer goods and weapons for war. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our International Baccalaureate Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related International Baccalaureate Economics essays

  1. The economics of A national cinema chain.

    It is measured as elasticity, becuase it measures the relationship as the ratio of percentage changes between quantity demanded of a good and changes in its price. The formula for Price elasticity of demand is PED = (% Change in Quantity Demanded)/(% Change in Price).

  2. World Economics assignment. The core economic issues that are focused on in this ...

    To the business, utilizing a single currency intensifies stiff competition among members within EU. By the contrast, it also provides corporations with increasingly opportunities and possibilities of expansion, so that these firms could produce their product to wider within EU.

  1. Growth and Development Problem Set - IB Economics exam questions and answers.

    An externality can be either positive or negative. (Example: pollution emitted by a factory). Sustainable development focuses on four main objectives: (1) social progress, (2) effective protection of the environment, (3) prudent use of natural resources, (4) maintenance of high and stable levels of economic growth and employment.

  2. Macro Economics Notes

    Ie the number of people employed and unemployed. Housewives, children, students and the elderly are not economically active. Sometimes called the labour force. How is unemployment measured The % of the labour force (economically active population) without paid employment Unemployment - types of Structural unemployment - unemployment caused by people

  1. The future of Eli Lilly

    First of all, it is important to notice that Eli Lilly more or less was forced into this Joint Venture. A lot of international pharmaceutical companies were present, so to be competitive world wide Eli Lilly needed to respond. Furthermore the then restricted pharmaceutical business prohibited Eli Lilly establishing their own 100% owned India-based Eli Lilly subsidiary.

  2. Economics Assignment

    Although the revenue would be less if the currencies values where increased the Gulf and the governments would have greater purchasing power, and they will find it easier to purchase more with their capital. A problem in the Gulf is that many nationals in the Gulf seem to receive an income without work.

  1. What is Economics? What do Economists do?

    Opp cost is measured in goods and serves forgone not money cost. It includes time cost. If for example, you have to give up paid work to go to UWC, the lost wages are part of your opp cost of going to UWC.

  2. 15 Historical Economic Questions on Mercatilism and the Development of European Countries.

    The textile industry brought profits to the European economy, as everybody needed clothes to wear. Also the newly efficient methods of textile productions allowed for modest pricing and in turn, even higher demand. The industry was one of the first to take the spotlight from agriculture and as it expanded it brought benefits through trade.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work