Professional Documents
Culture Documents
PREPARED BY:
MS. SHALIZA AMIRA BINTI SARIF
FOR:
CBA 102- PRINCIPLES OF ECONOMIC
SPP 1
DEFINITION
The aggregate income of the country earned
by the national through the production of
goods and services for a certain period of time,
usually a year.
INCOME APPROACH
OUTPUT / PRODUCT
APPROACH
EXPENDITURE APPROACH
INCOME APPROACH
This approach looks at the flow of economic
activities from the income point of view.
The components are:
Wages and salaries of all employees in every
sector.
Interest and dividends from shares.
Rent including inputed rent.
Profits, example- undistributed profits.
Income of self-employed workers such as hawkers.
The way calculation of income approach:-
Wages and salaries (including compensation for employees)
+ Interest and dividends
+ Rent
+ Profits (including undistributed profits and income from self-
employment/proprietor’s income)
= Gross domestic income at market price (GDImp)
_ Income paid abroad
+ Income received from abroad
= Gross national income at market price (GNImp)
+ Subsidies
_ Indirect taxes or taxes on expenditure
= Gross national income at factor cost (GNIfc)
_ Depreciation or capital consumption
= Net national income at factor cost (NNIfc)
= National Income
OUTPUT / PRODUCT APPROACH
b. Income distribution
- Even though national income may have increased, the increase may only
have been enjoyed by a few individuals or perhaps only a certain class in
the society. We can conclude that the standard of living of the common
people has not improved.
Cont….
c. Quality of goods and services
- In addition to the quality of the goods and services for consumers, the
quality must also maintained if not upgrade. Goods of inferior quality do
not constitute a ‘better quality of life’. Higher national income must also
ensure higher craftsmanship and quality must be attained at all times.
d. Population
- The increase in national income may be absorbed by the increase in
population as is the case in China, India, Indonesia and Pakistan. In terms
of per capita income, these countries have not made major improvement
to
their standard of living.
COMPARISON NATIONAL INCOME
OVER COUNTRY
a. National income concept
- There are two methods in terms of national income accounting. First there
is the Anglo Saxon approach where all goods and services are computed
while the other method, called the Soviet approach, only includes goods
without services. The former method is followed by most capitalistic
societies and those practicing mixed economies like Malaysia and
Singapore, while the latter method is adopted by the communist states.
e. Other factors
- Income distribution. For example, countries like the Middle East, Indonesia and
India have greater income inequality while in Singapore, USA, UK, Malaysia
there
is greater income inequality.
- Working hours and working conditions. UK and USA have five-day week and
better working condition.
- Government expenditure. For instance, India on space research, Korea on nuclear
power etc.
FACTORS THAT INFLUENCE
NATIONAL INCOME
a. Land
- In economies, the concept ‘land’ encompasses a wide range of activities
which include mining, fishery, agricltural activities etc. Land would also
mean the geographical location of the country, her harbour, climatic
conditions and other natural resources.
b. Labour
- Labour refers to both skilled as well as the unskilled labour, including
professional. Countries with a high proportion of educated labour force
would benefit as the skill level is high. The level of productivity will also
effect the size of national income.
c. Capital
- This factor wouild refer to the development of money and capital markets
in a country. If the banking system and other financial institution are well
established, then capital will be mobile and easily available to the
businessman. Business expansion would ultimately cause the economy to
expand and this will accelerate economic growth.
Cont….
d. Entreprenuership
- An entreprenuer is different from the other three factors of production
because he is involved in risk-taking, both insurable and non-insurable.
The more enterprising the entreprenuer is, the more profits he will reap.
e. Politcal stability
- This is a very vital factor in determining the size of national income and
standard of living. War-torn countries and those facing insurgency and
civil disturbances will not be able to fully concentrate their scarce
resources on economic activities. Their limited factors of production are
channelled to the production of military.
THE USES OF NATIONAL INCOME
STATISTIC
To measure standard of living.
- It refers the availability of goods and services in the country together with
other facilities. Leisure time also considered part of standard of living.
Those country with very low national income like Indonesia, Myanmar
would normally also have low living standard.
Sectorial contributions.
- There are 3 sectors in the economy- primary, secondary and tertiary.
- By analyzing the contribution of each sector, we will able to know which
sector makes the most contribution to nation’s economic growth.
Expenditure pattern
- Consist 3 components: household, producers expenditure and government
expenditure.
- The expenditure pattern can also reveal the type of economic system the
country practicing. For example, if government does most of the spending,
then we can draw the conclusion that it is a centrally planned economy.
Cont….
Balance of payment
- Defined as the sum total of payments and receipt that a country earns as a
result of international trading with the rest of the world. If income paid
abroad is far greater than income receive from abroad, there will be an
outflow of currency from the country and this will lead disequilibrium in
the balance of payments.
National Planning
- The government will formulate the five year plan, ten year plan,
development plan, sectorial activities plan and others based on national
income statistic.
- The government will have to forecast future developments on the basis of
present economic performance.