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National income accounting
I do not have enough information to determine the category of military expenditure or present two situations where GDP=GDE based on the given document. The document provides an overview of macroeconomics concepts like GDP, GNP, national income accounting, business cycles, inflationary and recessionary gaps, but it does not specify details about military expenditure categories or conditions for GDP=GDE.
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National income accounting
- 1.
- 3. Macroeconomics isthe study of the aggregate economy which deals with performance with the structure. In other words it is the study of the economy as a whole. E.g. - inflation, economic growth, international trade etc.
- 4. Government interventioninto the economy to solve macro economic problems (inflation, unemployment etc.) using macro economic policies (fiscal, monetary, supply side, exchange rate policy etc.) to influence the behavior of macro economic agents (individuals, households, firms, government, foreign sector) in order to achieve macro economic goals (full employment, economic growth, price stability etc.) could be simply referred to as macro economic management.
- 5. In orderto perform macro economic management, it is important to identify potential output and actual/real output. Potential output-the maximum possible output, the output when full employment exists. Rea/actual output- the output that is achieved by an economy The potential and real output can be identified by examining the Business Cycle
- 6. Business cyclesare recurring periods of recession and prosperity which are widespread throughout a nation and which feed upon themselves. There are various phases of a business cycle which can be presented as below
- 7.
- 8. Inflationary gap Is a macroeconomic condition that describes the current level of real gross domestic product (Y) exceeds full employment (long run equilibrium) real GDP. In other words here Potential GDP minus real GDP becomes a negative value. The effect of inflationary gap-excessive spending- is that it will pull up output prices, leading to demand-pull inflation. Here in this case Nominal GDP will rise because of higher price levels, but real GDP will not.
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- 10. Recessionary gap/unemploymentgap Is a macroeconomic condition that describes the current level of real gross domestic product (Y) is lesser than full employment (long run equilibrium) real GDP. In other words here Potential GDP minus real GDP becomes a positive value. The effect of recessionary gap – deficiency of spending- is that it will contract or depress the economy resulting unemployment and fall in real output.
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- 12. A PPBshows the maximum amount achievable in an economy given the quantity and quality of resources on a particular day. The potential output is drawn for a period and is a collection of PPBs
- 13. Through NATIONALINCOME ACCOUNTS
- 14. National incomeaccounting is a measurement of aggregate or overall output or income generated by an economy or the expenditure incurred by economic agents to buy or consume the produced during a given period of time. This represents tools and methods by which policy makers’ measure economic activity and economic growth over time. National Income=Output=Incomes=Expenditure incurred
- 15. To measuresectorial performance To measure the relative income distribution To measure the standard of living To implement economic policies To implement investment projects
- 16. Measured fora certain time duration Consider both goods and services Valuation can be either based on current market prices or constant prices (base year prices) If the product is traded in the market, valuation is done based on the market price If the product is not traded in the market, valuation is done based on cost of supplying the product i.e. at factor price
- 17. Productive economicactivities Subsistence economic activities Hidden economic activities Expenditure on intermediate goods Interest paid by the government to households for borrowings Non productive economic activities Transfer expenditure Second hand market transactions Expenditure on purely financial transactions
- 18. Economic activities Productive activities Through market Not through the market Blackmarket or illegal Non productive activities
- 19. This occurswhen a transaction is recorded more than once or being repeated. To avoid this two methods are used in calculations Value addition method AND Final product method In the final product approach we exclude the values of intermediate goods. Intermediate goods are goods which are made part of some final good. For instance, tires are intermediate goods when they are part of a car. Tires are final goods when they are sold separately as replacement parts. Incorporating intermediate goods to form a final good adds value to that good.
- 20. Product/ outputapproach Product approach is the method of preparing national income accounts based on the contributions made by producers or the final outcome during a given period of time. Expenditure approach Expenditure approach is the method of preparing national income accounts based on the expenditure incurred by macro- economic agents to purchase final output during a given period of time Income approach Income approach is the method of preparing national income accounts based on the factor incomes earned by households by selling factors of production as well as tax revenue and capital depreciation during a given period of time
- 21. Value AdditionMethod Value added= final product – intermediate goods Industry Total product Intermediates Value Added Timber 100 - 100 Furniture gross 200 100 100 Polished furniture 400 200 200
- 22. Final productMethod Final product = value of the final product + change in intermediate goods Change in intermediate goods= year end stock – stock at the beginning Final goods= consumer goods + investment goods
- 23. 1. Flouris an input (Intermediate goods) and its value of Rs. 500 are termed as value of ‘Intermediate Consumption’. 2. Bread is the Output and its value of Rs. 700 are termed as ‘Value of Output’. 3. Difference between the value of output and intermediate consumption is termed as ‘Value Added’. It means, that the baker has added a value of Rs. 200 to the total flow of final goods and services in the economy.
- 24. Output approach-FinalProduct method Value addition of the agricultural sector Value addition of the industrial sector Value addition of the service sector GDP at market price (-) net indirect taxes GDP at factor price (+)NFFI Foreign factor income receipts (-) foreign factor income payments GNP at factor price (-) depreciation NNP at factor price
- 25. Expenditure approach-FinalProduct method Total consumption expenditure Private consumption Public consumption Gross domestic capital formation Gross domestic fixed capital formation Changes in stocks Gross domestic expenditure at market price Net exports Exports (-) imports Expenditure on GDP at market price (-) net indirect taxes Expenditure on GDP at factor price (+) NFFI Foreign factor income receipts (-) foreign factor income payments Expenditure on GNP at factor price (-) depreciation Expenditure on NNP at factor price
- 26.
- 27. PERSONAL CONSUMPTIONEXPENDITURE Personal consumption expenditure is what households buy (except houses). It is made of durables (cars, appliances), nondurables (clothing, food) and services (haircuts, doctor visits, airline tickets). A convention is made on nondurables to be all items which last less than a year, including clothing. Nondurables expenditure is the most stable component of personal consumption expenditure.
- 28. GOVERNMENT PURCHASES Government purchases combine all goods and services bought by all forms of government: form paper clips to bridges and hospitals. This does not include government payment for work or any transfer payment.
- 29. Income approach-FinalProduct method Employee compensation Wages and salaries in kind Employee contributions to social security Gross profit Corporate taxes/ business taxes Retained profits/ business savings Dividends Rent Interest Gross self employed income/ mixed income Gross domestic income at factor price (+) net indirect taxes Gross domestic income at market price (+)NFFI GNI at market price (-) depreciation NNP at market price
- 30. Net foreignfactor from abroad Net indirect taxes Gross domestic capital formation Net exports/net external demand Available resources Resource utilization Current price/monetary/nominal GDP Constant price/real GDP Implicit price index/GDP deflator Economic growth rate
- 31. Per capitaGDP or GNP Disposable national income Household income Disposable household income Green national accounting Savings Investments Gross Domestic Product Gross National Product National Income
- 32. The totalmarket value of goods and services produced within the political boundary or geographical boundary within a given period of time usually one year.
- 33. The totalmarket value of all goods and services produced by residents or citizens of a country within a given period of time usually one year could be simply known as Gross National Product.
- 34. In theexam most of the time you will be required to calculate the National Income. Here National Income refers to the Net National Product estimated at factor cost price That is GNP after adjusting for depreciation and net indirect taxes
- 35. Net foreignfactor income is the difference between factor payments received from the foreign sector by domestic citizens and factor payments made to foreign citizens for domestic production. Factor income receipts from abroad include rent, interest, profits and dividends earned from the resources owned by the residents. Factor income payments to abroad include the rent, interest, profits and dividends paid for the resources owned by the non-residents.
- 36. When thesubsidy is deducted from indirect taxes it is called net indirect taxes. Here the subsidies given to producers and tax on producers are considered Subsidies and taxes given n imposed on buyers are not considered to avoid double counting. To get the factor price national product, net indirect taxes should be deducted from the market price national product. To find the market price national product net indirect taxes should be added to the factor price national output.
- 37. The totalexpenditure incurred within the territorial boundaries of a country, by private and public sector on purchasing capital goods which are used to maintain and increase existing and future production of a country inclusive of any unanticipated changes in stock levels. The term ‘gross’ has been used since this is the value before making any allowances for depreciation of the capital stocks Gross domestic fixed capital formation- The expenditure incurred within the territorial boundaries of a country during a particular period of time by private sector and public sector on building up capital stock of a country which facilitate enhancement of existing as well as future production. Changes in stock-Changes in stock refer to the raw material, work-in-progress, finished goods held by private sector, public sector at the beginning of a year and those at the end of the year.
- 38. Planting, replantingand land development Building and other constructions Plant and machinery Transport equipment Other capital goods
- 39. Difference betweenthe exports and imports of goods and non factor services is called net exports. Consequences of increase in imports relative to exports of a country should also be studied here. Exchange rates, domestic inflation rates, credibility of the country too affect indirectly to the amount of imports and exports of a country.
- 40. The sumof goods and service produced within the territorial boundaries of a country and the value of total imported goods and non factor services. Available resources = GDP + imports of goods and non factor services
- 41. Refers tohow the available resources of a country have been utilized for various economic activities. Utilization of resources = consumption + investment + exports of goods and non factor services
- 42. Total outputof a country estimated based on the prices prevailing in the year for which GDP/GNP/NNP is estimated
- 43. Total outputof a country of a particular year estimated based on the prices prevailing in a selected year known as the base year.
- 44. This isthe ratio between the GDP/GNP/NNP at current prices and the GDP/GNP/NNP at constant prices which captures the movement of the general price level of the country. GDP deflator = GDP at current price/ GDP at constant price x 100
- 45. This measuresthe percentage growth of real GDP of a given year relative to the previous year = real GDP current year - real GDP previous year real GDP previous year
- 46. = real GNP Midyear population This measures the growth of living standards Enable comparison of development among nations
- 47. This isthe total income that can be spent by a nation. National income (+) foreign current transfers (official/ private) received (-) foreign current transfers (official/ private) paid Disposable national income
- 48. Is thetotal income received by the household sector. It has two components. Income earned on factors of production Income earned apart from factors of production National income (-) deduct Government property income Corporate tax Retained profits Depreciation (+) add Private foreign transfers Local transfers to household sector pensions Household income
- 49. Disposable household income= Household Income – Taxes + Transfers Transfer payments are payments which are not connected to any productive activity. The typical example of a transfer payment is social security: contributions to social security are collected from all those who work and are passed on to those who are retired.
- 50. This takesinto account the environmental costs of development and reflects the use of precious natural resources in the process of generating national income. GNA = GNP – environmental degradation
- 51. Savings canbe defined as the quantum of income that is not spent as consumption expenditure. In other words it is the difference between income and the current consumption expenditure. Savings can be evaluated in three levels Domestic savings National savings Foreign savings
- 52. Domestic savings-domestic savings are the total quantum of savings made by individuals, businesses and the government within the territorial boundaries of a country = GDP at market price – consumption expenditure = household savings + business savings + public savings = investments + net exports
- 53. National savings-national savings refers to the domestic savings together with net factor income from abroad and net private transfers = disposable national income – total consumption expenditure = domestic savings + NFFI + net private transfers
- 54. Foreign savings-foreign savings is the difference between total investments of a country and national savings = net official transfers + foreign direct investments + foreign loans other than commercial loans
- 55. It isthe expenditure incurred by an economy to acquire physical capital assets and for the improvement of them. = Gross domestic expenditure – consumption = Gross domestic fixed capital formation + change in stocks = domestic savings + net imports of goods and non factor services
- 56. Subsistence economicactivities are excluded Hidden economic activities are excluded Interest paid by the government to households for borrowings are excluded Environmental effects are not considered Standard of living is not considered Time consuming Lengthy calculations
- 57. What isthe category of military expenditure? Present two situations where GDP=GDE.