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Basic macroeconomics lecture notes 1

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These points are taken from Macroeconomics Theory and Practice of HL Ahuja. The textbook is recommended for level course in Macro Economics offered to BS(BA) students in CIIT Attock.

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Basic macroeconomics lecture notes 1

  1. 1. Basic Macroeconomics INTRODUCTION AND CONCEPTS
  2. 2. Meaning of National Income National Income of a country is the total market value of all goods and services produced within a country in a year. Final Goods Intermediate Goods National Income = National Product = National Expenditure
  3. 3. CicularFlow Two Sectors, between HH and Firms Three Sectors, between HH, Financial Sector, Firms Four Sectors, between HH, FS, Firms, Govt.s Full, Five Sectors, HH, FS, Firms, Govt.s
  4. 4. National Income Identities: Equations for now ◦Two Sectors ◦Y=C+I ◦Y=C+S ◦C+S == Y == C+I ◦C+S=C+I ◦S=I ◦Three Sectors? ◦Four or Five Sectors?
  5. 5. GNP Gross National Product Total Market Value of all final goods and services in a country in a year ◦Monetary Value ◦Counting Care, e.g. count products/service each only once. Avoid problem of double/multiple counting Final Goods? Intermediate Goods? Normal Residents? Both national and foreigners dwell in a country.
  6. 6. Components of GNP Value of Final Goods/Consumed by Consumers, C Value of New Capital/Investment Goods, consumed by Firms, I Value of expenditure by Govt/Govt Consumption, G Net Exports, Exports minus Imports Net Factor Income, include wages, rents, interest/profits etc
  7. 7. What Incomes are added in GNP: A Simple Rule GNP= Net Factor Income from Abroad (FI) + Gross Private Investment (I) + Net Exports (Xn) + Govt Expenditure (G) + Private Consumption ( C )
  8. 8. GDP Gross Domestic Product It is GNP-Net Factor Income GDP=GNP -FacInc , FacInc is Factor Income as defined earlier. GNP=GDP + FacInc NOTE: FacInc is not Net Exports GDP=C+I+G+Xn Consider: Will the machinery etcwill wear and tear during the year of producing GDP/GNP?
  9. 9. Simple Rule: Contd. GNP= GDP= Net Factor Income from Abroad (FI) + Gross Private Investment (I) + Gross Private Investment (I) + Net Exports (Xn) + Net Exports (Xn) + Govt Expenditure (G) + Govt Expenditure (G) + Private Consumption ( C ) Private Consumption ( C )
  10. 10. NNP Depreciation? NNP=GNP-Depreciation Note, includes some indirect taxes which are not meant to be levied on the payer specially. Like some sales tax which is actually paid by the firms on selling points. Hence, actual price of products is different than what consumers really pay. Consumers paid price includes indirect taxes or subsidies. Hence, care is needed for considering it before final counting. Indirect Tax? Cost Price plus Tax, Tax is collected by Govts from firms Subsidy? Cost Price minus Subsidy, Subsidy is paid by Govts to businesses
  11. 11. Simple Rule: Contd GNP= GDP= NNP= Net Factor Income from Abroad (FI) + (Subtract Depreciationfrom Gross private Investment) =Ig-Depreciation=In Gross Private Investment (I) + Gross Private Investment (Ig) + Net Private Investment (In) + Net Exports (Xn) + Net Exports (Xn) + Net Exports (Xn) + Govt Expenditure (G) + Govt Expenditure (G) + Govt Expenditure (G) + Private Consumption ( C ) Private Consumption ( C ) Private Consumption ( C )
  12. 12. National Income When NNP is accounted for Indirect Taxes and Subsidies So NNP-Tax/Subsidies=NNI
  13. 13. Simple Rule: Contd. GNP= GDP= NNP= NI= Net Factor Income from Abroad (FI) + Subtract Net Foreign Income from GNP (Subtract Depreciationfrom Gross private Investment) =Ig-Depreciation=In Subtract Net Indirect Taxes from NNP and add Subsidy Gross Private Investment (I) + Gross Private Investment (Ig) + Net Private Investment (In) + Net Private Investment (In) + Net Exports (Xn) + Net Exports (Xn) + Net Exports (Xn) + Net Exports (Xn) + Govt Expenditure (G) + Govt Expenditure (G) + Govt Expenditure (G) + Govt Expenditure (G) + Private Consumption ( C ) Private Consumption ( C ) Private Consumption ( C ) Private Consumption ( C )
  14. 14. Personal Income As each final income receiver has also to pay some more types of taxes and get other benefits in addition to what is stated earlier, like Indirect Taxes and Subsidies, So final income at the disposal of normal consumers to spend/consume is a different entry/value. NNI -Undistributed Corporate Profits, Corporate Taxes and Social Security Contribution + transfer payments (any payment that is not related to get back something in return like pensions, unemployment compensation, relief payment, interest payment on public debt, etc.) Personal Income can be at disposal for consumption if any further personal income tax are paid by the recipient.
  15. 15. Measurement of National Income Value Added Method Income Method Expenditure Method
  16. 16. Anything else? Oh, its only Thank you.
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These points are taken from Macroeconomics Theory and Practice of HL Ahuja. The textbook is recommended for level course in Macro Economics offered to BS(BA) students in CIIT Attock.

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