6 Questions
What is the total value of goods and services produced within a country's borders over a specific period of time?
Gross Domestic Product
Which approach adds up the amount spent by households, businesses, government, and foreigners on goods and services?
Expenditure Approach
What is the total value of goods and services produced within a country's borders minus depreciation of capital assets?
Net Domestic Product
What is National Income minus undistributed corporate profits, social security contributions, and corporate taxes?
Personal Income
What is an indicator of a country's economic growth and development?
National Income
What is used to formulate fiscal and monetary policies?
National Income
Study Notes
Definition
- National income refers to the total value of goods and services produced within a country's borders over a specific period of time, usually a year.
Methods of Calculating National Income
- Expenditure Approach: adds up the amount spent by households, businesses, government, and foreigners on goods and services
- Income Approach: adds up the income earned by households and businesses
- Value-Added Approach: adds up the value added at each stage of production
Components of National Income
- Gross Domestic Product (GDP): the total value of goods and services produced within a country's borders
- Net Domestic Product (NDP): GDP minus depreciation (wear and tear) of capital assets
- National Income (NI): NDP minus indirect taxes plus subsidies
- Personal Income (PI): NI minus undistributed corporate profits, social security contributions, and corporate taxes
- Disposable Income (DI): PI minus personal taxes and non-tax payments
Importance of National Income
- Economic Growth: national income is an indicator of a country's economic growth and development
- Economic Policy: national income is used to formulate fiscal and monetary policies
- International Comparisons: national income is used to compare the economic performance of different countries
Definition of National Income
- National income represents the total value of goods and services produced within a country's borders over a specific period, typically a year.
Methods of Calculating National Income
- Expenditure Approach: calculates national income by adding up the amount spent by households, businesses, government, and foreigners on goods and services.
- Income Approach: calculates national income by adding up the income earned by households and businesses.
- Value-Added Approach: calculates national income by adding up the value added at each stage of production.
Components of National Income
Gross Domestic Product (GDP)
- Represents the total value of goods and services produced within a country's borders.
Net Domestic Product (NDP)
- Calculated by subtracting depreciation (wear and tear) of capital assets from GDP.
National Income (NI)
- Calculated by subtracting indirect taxes from NDP and adding subsidies.
Personal Income (PI)
- Calculated by subtracting undistributed corporate profits, social security contributions, and corporate taxes from NI.
Disposable Income (DI)
- Calculated by subtracting personal taxes and non-tax payments from PI.
Importance of National Income
Economic Growth
- National income is an indicator of a country's economic growth and development.
Economic Policy
- National income is used to formulate fiscal and monetary policies.
International Comparisons
- National income is used to compare the economic performance of different countries.
This quiz covers the concept of national income, its importance, and the three methods of calculating it: Expenditure Approach, Income Approach, and Value-Added Approach.
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