CHAPTER 3 :

NATIONAL INCOME
: Basic concepts -1
a. National income ( NI )
It is the of values of goods and services produced by the
. citizens of certain country within certain year

: b. Final and Intermediate product

Final product are the goods and services that we get to
. satisfy our needs directly such as bread , clothes ,.. etc
Intermediate product are the products which inter to
produce other products or to transfer them to other
. products such as wheat , cement , .. Etc

.
c. Per Capita income ( PCI )
Per capita income for certain country for certain year
equal national income of the country divided by amount
: of population . For example
. PCI of Iraq 2015 = NI(2015 ) ÷ Pop(2015)

d. Gross domestic product ( GDP )

It is the sum of final goods and services produced in the
political bounds of certain country by citizens and
. foreigners ( including depreciation ) within certain year
d. Gross national product ( GNP )
It is the sum of goods and services produced by
the citizens of the certain country including
. depreciation within certain country

e. Net national product ( NNP )

It is equal gross national product without
,depreciation i.e
NNP = GNP – depreciation
Factors effecting National Income – 2
. a. The amount of production factors
. b. The efficiency of production factors
. c. Level of using of production factors
d. The nature of proportionality among production
. factors
. e. Method of allocation of production factors
: Methods of income accounting – 3
A. Incomes method : That is the income received by
production factors against their contributing in national
product production . These are rents , wages , interests
. and profits
B. Expenditures method : According to this method NI
equals the sum of the expenditures spent on the goods and
. services produced in certain country during the year
C. Add value method : In this method we dividing the
economy to several sectors and then calculate the value
add by each sector to the economy using input - output
. analysis in it
Further concepts – 4
a. Consumption : Is the utilizing from goods and services ,
. it depends on income i.e, its function to income
. b. Saving : Is residual of income after consumption
c. Investment : Is the increase in real capital of society ,
. such as buildings , stocks ,… etc
: d. Factors effecting investment
. Expected profits -
. Technical progress -
. population growth -
. Rate of interest and Marginal efficiency of capital -
Equilibrium situation : According to the classical theory – 5
the equilibrium of economy achieved in the case of full
. employment only
emphasis in his new theory on the equivalence ( KEYNES)
between investment and saving as a condition to economy
equilibrium in any specific period , in spite of there are full
employment or not . Then the equilibrium situation of
Y = C + S
Y = C + I
I = S
CHAPTER 4 : MONEY AND
BANKING
Definition of money -1
Money is any thing that is generally acceptable among
people and willing to use it as mean of payment for goods
. and services

Functions of money – 2
a. A medium of exchange : It is importance function of
. money , its used to pay for goods and services

b. A Store of value : Money used to save the purchasing

power from the time income received until the time it is
. spent

.
c. Standard of value ( Unit of account ) : It is used to
measure value in the economy , that is we measure the
. value of goods and services in term of money
We can distinguish between value and price by note this
: points
Value can expressed as goods and services while price .*
. expressed by money only
Value are used for any amount of goods and services .*
. while price related by one unit only

: d. Standard of deferred payment

: Kinds of money – 3
a. Commodity money : The Money made up of
precious metals or another valuable commodity called
and its be functioned as medium , ( commodity money )
. of exchange for several centuries ago

b. Fiat money : Paper currency ( pieces of paper that

function as medium of exchange ) . It be acceptable if
decreed by government but not convertible to coins or
. precious metal by 100% at any time
c. Bank money : The famous form of bank money is
checks . It used to transfer money from account to
another without carrying large amount of currency .
: The advantages of checks system is
No currency need be moved , and reduce the --
. transportation costs and improve economic efficiency
It can written for any amount up to the balance in --
. the account
. Checks are have less risks in case of theft --
: There are two major problems with checks system
It takes time to get checks from one place to --
. another specially if there are need to paid quickly
. There are high cost in checks process --
d. Electronic payment : It become more common in
most countries , banks provide website that allow
one to log on and pay bills automatically without any
. moving of money or person
e. E Money : That money exists only in electronic
: form as
Debit cards : like credit card that enable customers --
to purchase goods and services by electronically
transferring fund directly from their account to
. merchant ‘s account
. .Smart card : It can be loaded from ATM or p.c --
e Cash : Which is used on the internet to purchase --
. goods and services
The Banks : There are three major kinds of banks , – 4
. commercial banks , central banks and specialized banks

: Kinds of banks – 5
a. Commercial banks : The bank is a financial institution
that provides a wide variety of financial services ,
especially lending , savings , and payments as a credit or as
investment . It also provides any business establishment
. with a wide range of financial services necessary for it
historically , the origin of the banks back to middle ago , *
and the first official bank are established at 1609 as
. Amsterdam Bank
: Functions of commercial banks *
. Accepting deposit -
. Lending money to others -
. Creating money to contribute the economic activities -
: That functions above depends on
. Amount of initial deposit -
. Level of reserve ratio -
. The desire of banks to increase their assests -
b. Central banks : It stands at the top of the banking
. system in country
: Functions of central banks *
. It is bank that issues currencies -
. It is bank of the state -
. It is bank of all banks -
. Maintaining exchange rate -
. Formulating and implementing monetary policy -
-c .c
– specialized banks : It is a type of bank that serves a
kind of economic activity and It is specialized in banking
operations for that sector only . Accepting deposits is not
one of its basic activities , and it serves basic sectors in
the national economy such as the real estate ,
agricultural , industrial or housing sector , and it is not
one of the objectives of this Banks invest short term but
. most of their financing is for long term investment
CHAPTER 5: INTERNATIONAL
TRADE
.Concept of international trade -1
International ( foreign ) trade means the exchange
process of goods and services between two or more
countries . i.e, goods and services pass political bounds of
. the countries

. Reasons of international trade -2

. a. Differences of natural circumstance among countries
b. Differences of technological development level
. among countries
c. Increase of local demand that encourage importing
. goods and services
Differences between local and international trade -3
a. Factors of production have a high freedom of mobility in
. local trade
. b. Existence of monetary differences in international trade
c. Existence of artificial barriers in international trade ,
. such as : tariffs , quotas , licenses …etc
d. There are other differences in international trade such as :
. language , laws , systems … etc
Benefits of international trade -4
a. satisfying the need of some countries from the surplus
. of others
b. Supporting the process of economic and social
. development in less developing countries
. c. Supporting cooperation among countries
. d. Exchanging technical experience

Theories of international trade -5

a. Classical theories : Adam Smith , David Ricardo , John
. Stewart Mill
. b. Modern theories : Hiksher-Ohlin
 Balance of payments and rate of exchange -6
a. Balance of payment : is an statistical record for
commercial , monetary and financial transactions which
in occurred among residents in certain country and residents
. other countries within the year
b. Rate of exchange : It is the ratio of exchange of certain
currency by other currencies , for example the rate of
: exchange 1 $ against Iraqi Dinars equal

Numbers of IDS ⁄ 1$