Topic 7

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Topic 7

  1. 1. National Income EDWARD BAHAW - Economic Principles and Their Application to Business (ABE) Chapter #9
  2. 2. National Income <ul><li>The total level of income in a nation. </li></ul><ul><li>Economic Growth - National income is increasing. </li></ul><ul><li>Recession - National income is decreasing. </li></ul>EDWARD BAHAW - Economic Principles and Their Application to Business (ABE)
  3. 3. PRODUCERS Y = $40M CONSUMERS S = $6M S T = $4M M = $10M Factors of Production Goods and Services X = $7M G = $5M I = $8M C D = $20M Circular Flow of Income EDWARD BAHAW - Economic Principles and Their Application to Business (ABE)
  4. 4. Gross Domestic Product (GDP) <ul><li>GDP = C T + I + G + X – M </li></ul><ul><li>C T = C D + M </li></ul><ul><li>C T : Total Consumption </li></ul><ul><li>C D : Domestic Consumption </li></ul><ul><li>I : Investment </li></ul><ul><li>G : Government Spending (excluding Transfer Payments) </li></ul><ul><li>X : Exports </li></ul><ul><li>M: Imports </li></ul>EDWARD BAHAW - Economic Principles and Their Application to Business (ABE)
  5. 5. GDP of Trinidad and Tobago EDWARD BAHAW - Economic Principles and Their Application to Business (ABE)
  6. 6. GDP at Factor Costs <ul><li>GDP FC = GDP MP + Subsidies – Indirect Taxes </li></ul><ul><li>GDP FC : GDP at factor cost </li></ul><ul><li>GDP MP : GDP at market prices </li></ul>EDWARD BAHAW - Economic Principles and Their Application to Business (ABE)
  7. 7. Gross National Product (GNP) <ul><li>GNP = GDP + Net Income from Abroad </li></ul><ul><li>Net Income from Abroad = Income Inflows from abroad – Income </li></ul>EDWARD BAHAW - Economic Principles and Their Application to Business (ABE)
  8. 8. Net National Product (NNP) <ul><li>NNP = GNP – Capital Consumption </li></ul><ul><li>Capital Consumption – A measure of depreciation. </li></ul>EDWARD BAHAW - Economic Principles and Their Application to Business (ABE)
  9. 9. The table gives a host of measures relating to the macro economy. <ul><li>Use the information to determine: </li></ul><ul><li>Total Final Expenditure </li></ul><ul><li>Gross Domestic Product at market prices </li></ul><ul><li>Gross Domestic Product at factor cost </li></ul><ul><li>Gross National Product at factor cost </li></ul><ul><li>Net National Product at factor cost </li></ul>EDWARD BAHAW - Economic Principles and Their Application to Business (ABE) Consumption 30 Exports 50 Imports 10 Government spending 20 Net property income from abroad 5 Investment 15 Depreciation 10 Indirect taxes 15 Retained earnings 10 Income tax 15 Subsidies 5
  10. 10. Answer EDWARD BAHAW - Economic Principles and Their Application to Business (ABE) Item Amount Consumption 30 Investment 15 Government purchases 20 Exports 50 TOTAL FINAL EXPENDITURE 115 Imports 10 GROSS DOMESTIC PRODUCT at market prices 105 Indirect Taxes 15 Subsidies 5 GROSS DOMESTIC PRODUCT at factor cost 95 Net Property Income from abroad 5 GROSS NATIONAL PRODUCT at factor cost 100 Depreciation 10 NET NATIONAL PRODUCT AT factor cost 90
  11. 11. GDP per capita of Caricom Countries in 2009 EDWARD BAHAW - Economic Principles and Their Application to Business (ABE) Country GDP per Capita in US$ Antigua and Barbuda 19,140 Bahamas, The 30,250 Barbados 18,859 Belize 8,256 Dominica 9,996 Grenada 13,115 Guyana 3,850 Haiti 1,276 Jamaica 8,507 Montserrat 5,690 Saint Kitts and Nevis 18,926 Saint Lucia 11,069 Saint Vincent and the Grenadines 10,251 Suriname 8,781 Trinidad and Tobago 23,651
  12. 12. Top 20 Countries by GDP per capita in 2009 EDWARD BAHAW - Economic Principles and Their Application to Business (ABE) Country Population GDP in US$ Million GDP Per Capita in US$ 1 Luxembourg 491,700 38,560 78,422 2 Bermuda 65,000 4,500 69,231 3 Jersey 89,300 5,100 57,111 4 Norway 4,822,000 267,000 55,371 5 Malta 412,600 21,890 53,054 6 Singapore 4,839,400 244,000 50,419 7 Liechtenstein 35,593 1,786 50,178 8 Brunei 400,000 19,640 49,100 9 United States 306,735,000 14,290,000 46,587 10 Cyprus 801,600 36,530 45,571
  13. 13. GDP per capita <ul><li>GDP per capita is Gross Domestic Product divided by the total size of the population. </li></ul><ul><li>This gives a measure of income per person </li></ul>EDWARD BAHAW - Economic Principles and Their Application to Business (ABE)
  14. 14. Nominal GDP vs Real GDP <ul><li>Nominal GDP - measures the value of goods and services using current prices. </li></ul><ul><li>Real GDP - measures the value of goods and services using constant prices. </li></ul>EDWARD BAHAW - Economic Principles and Their Application to Business (ABE)
  15. 15. Assuming that an economy produces only crude oil and natural gas as listed in the table: <ul><li>Using the data, determine for each year </li></ul><ul><li>Nominal GDP </li></ul><ul><li>Real GDP using 2005 as the base year </li></ul>EDWARD BAHAW - Economic Principles and Their Application to Business (ABE) Year Price of crude oil in $US Quantity of crude oil Price of natural gas in US$ Quantity of natural gas 2005 40 100000 3 3000000 2006 60 150000 4 4000000 2007 75 150000 6 4000000 2008 100 120000 8 4000000
  16. 16. Nominal GDP EDWARD BAHAW - Economic Principles and Their Application to Business (ABE) Year Value of Crude Oil in current prices Value of Natural Gas in current Prices Nominal GDP US$ US$ US$ 2005 4000,000 9000,000 13000,000 2006 9000,000 16000,000 25000,000 2007 11250,000 24000,000 35250,000 2008 12000,000 32000,000 44000,000
  17. 17. Real GDP EDWARD BAHAW - Economic Principles and Their Application to Business (ABE) Year Value of Crude Oil in 2005 prices Value of Natural Gas in 2005 Prices Real GDP (2005 Prices) US$ US$ US$ 2005 4000,000 9000,000 13000,000 2006 6000,000 12000,000 18000,000 2007 6000,000 12000,000 18000,000 2008 4800,000 12000,000 16800,000
  18. 18. June 2009 <ul><li>Q5 (a) Explain how national income per capita is calculated. (10 marks) </li></ul><ul><li>(b) Discuss the limitations of national income per capita as a measure of economic well-being. (15 marks) </li></ul>EDWARD BAHAW - Economic Principles and Their Application to Business (ABE)
  19. 19. Dec 2009 <ul><li>Q6 (a) Explain the adjustment necessary to obtain gross national product from gross domestic product. (5 marks) </li></ul><ul><li>(b) Explain the distinction between nominal and real measures of national income. (5 marks) </li></ul>EDWARD BAHAW - Economic Principles and Their Application to Business (ABE)
  20. 20. Dec 2009 <ul><li>Q6 (c) Explain what adjustment needs to be made to national income accounts to obtain net national income from gross national income. (5 marks) </li></ul><ul><li>(d) Explain the distinction between gross domestic product at market prices and gross domestic product at factor cost. (5 marks) </li></ul>EDWARD BAHAW - Economic Principles and Their Application to Business (ABE)

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