eco chap 6
- Created by: Zarshah Khalid
- Created on: 30-06-20 14:20
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- Measurement methods of NI
- Expenditure approach
- the total value of expenditure on purchasing final goods and services during the year.
- measured by adding up the expenditure in the country.
- personal consumption (C) gross private domestic investment(I) govt. consumption and gross investment(G) net exports (X-M)
- less: taxes add: subsidies
- GDP=
- personal consumption (C) gross private domestic investment(I) govt. consumption and gross investment(G) net exports (X-M)
- DIFFICULTIES: 1.sth only gets counted if sold. 2. expenditures are misleading by indirect taxes and subsidies. 3. further adjustments are necessary for changes in stock levels, net export, depreciation allowance.
- SOCIAL SECURITY SPENDINGS by the govt. are part of (C) not (G).
- income approach
- total value of all incomes earned from producing goods and services during the year.
- this method measures NI after it has been distributed and appears as income earned/ received by individuals of country.
- DIFFICULTIES. >double counting >self provided services >non distribution of some factor incomes to F.O.P.
- Calculation ignores, >transfer payments >income gained from stock appreciation >private transfers >subsistence farming and barter transactions
- Output or product method
- value added method
- total value of final goods and services produced during the year.
- measures the NI by adding NET VALUES of all production that has taken place in all sectors during a given period.
- mining agriculture energy manufacturing banking etc.
- GDP=
- mining agriculture energy manufacturing banking etc.
- DIFFICULTIES, >lack of trained staff >illiteracy/unreliable record keeping >inadequate info caused by poor collection procedures >not all info about the size of economy >barter transactions >double counting >transfer payments
- Expenditure approach
- + net factor income from abroad = GNP - capital consumption = NNI/NI
- GDP at Factor cost
- indirect taxes present
- - indirect taxes = NI
- wages profits interest rent (ignore transfer payments)
- GDP=
- total value of all incomes earned from producing goods and services during the year.
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