eco chap 6

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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=
      • 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=
      • 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
  • + 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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