National Income

From ZuluNotes - Free Leaving Cert Notes

NATIONAL INCOME

defined: total value of goods and services produced in an economy over a specified period of time, usualy 1 year.

            measured using GNP (gross national product)

National Income:

• toal expenditure
• total income
• total output

• output = expenditure = income (all output sold and all income spent)

Calculating National Income:

  1. The income method - all incomes of factors of production added togethed

   Stock appreciation - if value of stock goes up because of inflation - this must be deducted.

.  Net factor income from abroad (NFIFA) - difference between income earned by Irish factors of production abroad and sent home income                                                                 earned by foregin Factors of production - repatriated

   Transfer Payments - payments transferred from the tax payers to social welfare recipents (e.g. dole, OAP) -> not counted

2. Output method - total value of goods and services produced over a year are added.

  Output from governemt - not sold to the public, value is calculated as the income paid to the factors of production

  Double Counting - use value added method ( i.e add value added at each stage of production) when calculating output.

3. Expenditure Method - add up all final expenditures :

                                    consumption, investement, government, exports less imports i.e aggregate demand = C+I+G+[X-M}

                                                          GDP_mp ----> GNP_mp ----> GNPfc -----> NNP_fc

Importance of GNP statistics:

1.  Show changes in the level of economic growth.
2. Can compare performance with other countries
3. Indicates changes in standart of living
4. Indicates the effectiveness of national economic policy and if changes are needed in it.
5. Shows how walth is distributed
6. Shows contribution of government to the ecomony and the trend.

Limitations of GNP statistics: 

1. Pollution: such as acid rain or green house effect
2. Welfare: national well-being or welfare cannot be measured simply by growth in GNP
3. Population growth: GNP may be risig but so may be the population so the growth in the GNP per capita may not be as great as figures suggest.
4. Distribution of income: GNP per capita takes no account of how national income is distributed, one sector may be gaining more than the other.
5. Non- market activities: only goods included in GNP stats are those exchanged for money, GNP underestimates our living standards.
6. Quality, although our GNP may be rising it tells us nothing about the quality of the good, they may be falling.

GDP vs. GNP

GDP - value of goods and services produced in the Domestic Economy,irrespective who owns the factors of production.

GNP - value of goods and services produced by national resources i.e Irish owned factors of production same of which may be located abroad.

GDP - or + NFIFA = GNP

hope it helped :)

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