INTRODUCTORY

NATIONAL
MACRO CHAPTER 4
INCOME
ACCOUNTING
ECONOMICS
CONSUMPTION
CHAPTER 5
 CRISTOBAL M. PAGOSO AND SAVINGS
 ROSEMARY P. DINIO
 GEORGE A. VILLASIS

INVESTMENT
CHAPTER 6
FUNCTION
SPECIFIC OBJECTIVES:

STUDENTS WILL BE ABLE TO:

 TO DESCRIBE THE MAIN MACROECONOMIS THEORIES OF SHORT TERM FLUNCTUATIONS AND LONG
TERM GROWTH IN ECONOMY

 TO EXPLAIN THE CIRCULAR FLOW OF ECONOMICS AND INCOME

 TO DETERMINE THE CONCEPT OF GROSS DOMESTIC PRODUCT AND GROSS NATIONAL PRODUCT

 TO DIFFERENTIATE AMONG VARIOUS CONCEPTS OF GDP AND GNP

 TO CALCULATE NATIONAL INCOME USING THREE DIFFERENT METHODS; INCOME METHOD, VALUE
ADDED METHOD, AND EXPENDITURE METHOD.
 GDP
Chapter 4
NATIONAL INCOME It is a measure of the total value of all
goods and services produced within a
ACCOUNTING country during specific period. It helps
us understand the size and growth of an
economy.
► GROSS DOMESTIC
PRODUCT (GDP)

GNP

► GROSS NATIONAL It is the total value of all goods and

PRODUCT (GNP) services produced by the residents of a
country, both domestically and abroad,
in a specific period. It takes into
account the income generated by a
country’s citizens, regardless of where
they are located.
 DISPOSABLE INCOME
NATIONAL INCOME
ACCOUNTING Refers to the amount of money that
individuals have available to spend or
save after paying taxes essential
expenses. It represents the income that
can be used for discretionary purposes.
► DISPOSABLE INCOME

IMPORTANCE OF MEASURING
ECONOMIC ACTIVITY
► IMPORTANCE OF
MEASURING ECONOMIC It helps in understanding the overall
health and performance of an economy.
ACTIVITY
It allows us to track changes in
production, income, employment, and
other key indicators. This information
helps policy makers and business
makes smart decision and see the
impact of economic policies.
 INCOME METHOD
measures national income from the side
3 DIFFERENT of payments made to the primary factors of
production in the form of rent, wages,
METHODS IN interest and profit for their productive
CALCULATING services in an accounting year.

NATIONAL INCOME
VALUE ADDED METHOD

► INCOME METHOD GNP can be calculated by adding up all

the value added from the intermediate
goods. Countries with tax systems
► VALUE ADDED based on value added taxes, prefer this
METHOD method.

EXPENDITURE METHOD
►EXPENDITURE GDP can be calculated as the sum
METHOD of all expenditures: personal
consumption expenditure, investment,
government purchases, and net exports.
 Chapter 5
CONSUMPTION
AND SAVINGS
► INCOME =
CONSUMPTION+SAVINGS

► SAVINGS AND
ITS TYPES

► CONSUMPTION
AND ITS TYPES
 INCOME The opposite of saving is dissaving.

= This means spending above one's income

thru or by:
CONSUMP
 Dipping into savings,
TION  Buying on credit, or
 Borrowing money.
+
SAVINGS
 Consumption deals with the satisfaction of
wants.
CONSUMPTION Consumption implies the satisfaction of a human
want.
AND ITS
TYPE  DIRECT OR FINAL
CONSUMPTION

- when the goods satisfy human

Direct or final wants directly and immediately.
consumption
 INDIRECT OR PRODUCTIVE
CONSUMPTION
Indirect or
productive -when the goods are not meant for
consumption final consumption but for producing
other goods.
 Taking out part of the money that is
saved.
SAVINGS AND ITS
TYPE
 PERSONAL SAVINGS

Personal Setting aside a portion of income for

future use or emergencies
Savings
 NATIONAL SAVINGS

National Refers to the total savings of

individuals, business, and the
Savings government within a country
CONCEPT INVESTMENT
OF AND THE
CVVC
MULTIPLIER
INVEST Chapter 6
MENT

INVESTMENT
FUNCTION
SAVINGS AS
THE SOURCE
OF
INVESTMENT

1 of 4
 Investment expenditure is capital spending
mainly derived not from current income and
consumption but from accumulated savings
and other sources external to the circular flow.

Consumption expenditure is
spending on current consumption
or consumption of non-durable
goods. In contrast, investment
CONCEPT OF
expenditure is spending on capital
goods which are repeatedly used
INVESTMENT
and gradually consumed over a
long period as durable goods.
Thus, investment expenditure is a
prepayment of long-run
consumption.
 The term investment multiplier refers to the
concept that any increase in public or private
investment spending has a more than
proportionate positive impact on aggregate
income and the general economy.

But how does investment spending determine

income? For instance, extra government
spending on roads can increase the income of INVESTMENT
construction works, as well as the income of
materials suppliers. These people may spend AND THE
the extra income in the retail, consumer MULTIPLIER
goods, or service industries, boosting the
income of the workers in those sectors.
 The investment multiplier is equal to

1 / (1 - MPC)

Formula’s or

1 / MPS
or The equation below shows the relation between Investment and

Equation Income:

Y=C+I

The equation further implies that investment is directly

proportional to income.
 An easy way to understand the economist’s
view of saving—and its importance for
economic growth—is to consider an economy
in which there is a single commodity, say, corn.
The amount of corn on hand at any point in
time can either be consumed (literally gobbled
up) or saved. Any corn that is saved is
immediately planted (invested), yielding more
corn in the future. Hence, saving adds to the SAVING AS THE
stock of corn in the ground, or in economic
jargon, the stock of capital. The greater the SOURCE OF
stock of capital, the greater the amount of
future corn, which can, in turn, either be
INVESTMENT
consumed or saved
 Savings of the economy is expressed as follows:

S=Y-C

Formula’s The new income equation as we recall is

or Y=C+I

Equation If we derive the equation for investment,

Y-C=I

We will arrive at the Savings-Investment Equilibrium S =

I
 Sample
Assume: Y = C + I

100 = 80 + 20

Problems MPS = 0.20

a. What would be the additional income and consumption if

investment were to increase by 15?

b. What would be the total income and consumption as a result

Y IS INCOME
of the foregoing?
C IS CONSUMPTION
I IS INVESTMENT c. Compute for additional savings.
 S = MPS (Y)

SOLUTION
35 = 0.20 (Y)
35/0.20 = Y
Y = 175

It is said that investment was to increase
by 15. Since the initial investment is equal
to 20, then the new Investment is equal to
35. Since we know that one important
assumption in a simple economy is that
Investment should be equal to savings,
then we now know that S = I; since I is
now equal to 35, then we can say that S =
35. We all know that MPS is being used to
get S, given a level of income (Y), where
S = MPS(Y). Since S is already given,
then we look for the new Y when savings
increased by 15.
So, the additional income is 75 since the initial income is 100.
To compute for the additional consumption: We know that income (Y)
is either being saved or being used for consumption. So we know that Y
= S + C Since income (Y) is now equal to 175, and savings is now equal
to 35. Then we can compute by doing the following:
Y=C+S
175 = C + 35
175 – 35 = C
C = 140
So the additional consumption is 60 since the initial consumption is
80 .
c. Compute for additional savings. To answer this, we know that
investment is equal to savings, so 15 is the additional savings.
 LET’S HAVE SOME QUIZ

Please indicate if the question is true or false. Write T if true and write F if false.

1. GDP is the total value of all goods and services produced by the residents of a country, both domestically and abroad, in a
specific period.

2. GNP is the total value of all goods and services produced by the residents of a country, both domestically and abroad, in a
specific period.

3. GDP is a measure of the total value of all goods and services produced within a country during specific period.

4. GNP is a measure of the total value of all goods and services produced within a country during specific period.

5. Disposable income refers to the amount of money that individuals have available to spend or save after
paying taxes essential expenses
 LET’S HAVE SOME QUIZ

Please indicate if the question is true or false. Write T if true and write F if false.

F 1. GDP is the total value of all goods and services produced by the residents of a country, both domestically and abroad, in a
specific period.

T 2. GNP is the total value of all goods and services produced by the residents of a country, both domestically and abroad, in
a specific period.

T 3. GDP is a measure of the total value of all goods and services produced within a country during specific period.

F 4. GNP is a measure of the total value of all goods and services produced within a country during specific period.

T 5. Disposable income refers to the amount of money that individuals have available to spend or save after
paying taxes essential expenses
LET’S HAVE SOME QUIZ

Please answer the following question indicated in each number.

1 – 2. Enumerate the two types of consumption

3 – 4. Enumerate the two types of savings

5. Write down the formula for income

ANSWER:

1 – 2. Enumerate the two types of consumption

DIRECT OR FINAL CONSUMPTION, INDIRECT OR

PRODUCTIVE CONSUMPTION
 ANSWERS:

3 – 4. Enumerate the two types of savings

PERSONAL SAVINGS, NATIONAL SAVINGS

5. The formula for Income

INCOME = CONSUMPTION + SAVINGS

LET’S HAVE SOME QUIZ

Read, understand and answer the given question.

Kindly write a 3-5 sentences essay regarding what

have you learn about investment function.