Income, output and expenditure;
NATIONAL INCOME: This is level of output in an economy.
3 ways it can be measured:
1. National output (O): The value of the flow of goods and services from firms to households 2. National expenditure (E): The value of spending by households on goods and services. 3. National income (Y): The value of income paid by firms to households in return for land, labour and capital.
These are all ways of measuring the flows between households and firms as shown here: THE CIRCULAR FLOW OF INCOME MODEL
Households supply factors of production to firms in return for rent, wages, interest and profit. Households spend their money on goods and services supplied by firms.
Measures of national income
Gross Domestic Product (GDP):
A key measure of national income, it includes indirect taxes (taxes on expenditure). Also includes the value of exports and imports.
Gross Value Added (GVA):
This is GDP minus indirect taxes plus subsidies on goods. Indirect taxes minus subsidies are called the basic price adjustment.
Gross National Income at market prices (GNP):
This is GDP plus income earned abroad on investments and other oversees assets minus income paid to foreigners for UK investments.
Net National Income at market prices:
Every year the capital stock or physical wealth of a country depreciates in its wealth. This is like a car, the longer you use it, the lower the value of it drops. A country’s true value is its gross national income minus depreciation and this is known as Net National Income.
GDP at market prices is very useful as a way of comparing countries’ economies as the information to calculate it is so readily available. Also, it can be used to judge the performance of a country.
Some incomes are not included in the calculation of national income. So incomes are paid out without anything output to the...