The document defines several economic concepts and provides information on calculating gross domestic product (GDP) and national income. It discusses how GDP is measured using the expenditure, production, and income approaches. GDP can be nominal or real, with real GDP adjusting for inflation. National income includes factors like household income, gross national income, and net domestic product. Per capita GDP and income are also covered, which divide metrics by population. Economic growth rates represent the percentage change in variables like GDP over time.

1. UNIT 2:
THEORETICAL CONCEPTS
OF ECONOMICS
Presented By:
Tanzela Bashir

2. Definitions
 Per Capita GDP Definition Per capita GDP is a metric that
breaks down a country's GDP per person and is calculated by
dividing the GDP of a country by its population.
 Developed Economy A developed economy is one with
sustained economic growth, security, high per capita income,
and advanced technological infrastructure.
 Gross Domestic Product (GDP) Gross domestic product (GDP)
is the monetary value of all finished goods and services made
within a country during a specific period.
 Household Income Definition Household income is the
combined gross income of all people occupying the same
housing unit, who are 15 years and older.
 What Is Gross National Income (GNI)? GNI is the total
amount of money earned by a nation's people and businesses.
It is an alternative to GDP as a way.to measure and track a
nation's wealth.

3. Per Capita
Income
 What Is Per Capita Income?
 Per capita income is a measure of the
amount of money earned per person in a
nation or geographic region. Per capita
income can be used to determine the
average per-person income for an area
and to evaluate the standard of living
and quality of life of the population. Per
capita income for a nation is calculated
by dividing the country's national income
by its population.

4. Understanding
PerCapita
 Per capita is a term used in economic and statistical
analysis that means per person.
 Per capita is used when comparing a certain economic
metric to a population.
 The most common instances of per capita are gross
domestic product (GDP) per capita and income per
capita.
 Per capita information provides more granular data
than just aggregate information. It is often used as an
apples to apples comparison between countries with
different population sizes.
 Per capita information is often contrasted with median
information, which provides a clearer picture as it
considers outliers.

5. Theformulaof
measuringper
capitaincome
 The term "per capita" is a Latin phrase that translates to
"per person". ... For example, a common way in which per
capita is used is to determine the GDP per capita, or the
gross domestic product of a population per capita.

6. Howis
householdper
capitaincome
calculated?
 Household monthly income per person is calculated by
taking the total gross household monthly income
divided by the total number of family members living
together.
 Per capita income counts each man, woman, and child,
even newborn babies, as a member of the population.
This stands in contrast to other common
measurements of an area's prosperity, such as
household income.
 which counts all people residing under one roof as a
household, and family income, which counts as a
family those related by birth, marriage, or adoption
who live under the same roof.

7. PerCapitaKey
Terms
Per capita income is a measure of the
amount of money earned per person in
a nation or geographic region.
Per capita income helps determine the
average per-person income to evaluate
the standard of living for a population.
Per capita income as a metric has
limitations that include its inability to
account for inflation, income disparity,
poverty, wealth, or savings.

8. PerCapitaGDP
 Per capita gross domestic product (GDP) is a
metric that breaks down a country's economic
output per person and is calculated by dividing
the GDP of a country by its population.
 Per capita GDP is a global measure for
measuring the prosperity of nations and is used
by economists, along with GDP, to analyze the
prosperity of a country based on its economic
growth.
 Small, rich countries and more developed
industrial countries tend to have the highest per
capita GDP.

9. National
Income

10. Conceptof
NationalIncome
 National income means the value of goods and services
produced by a country during a financial year. Thus, it
is the net result of all economic activities of any
country during a period of one year and is valued in
terms of money. National income is an uncertain term
and is often used interchangeably with the national
dividend, national output, and national expenditure.
National income definition.
 The National Income is the total amount of income
accruing to a country from economic activities in a
years time. It includes payments made to all resources
either in the form of wages, interest, rent, and profits.
 The progress of a country can be determined by the
growth of the national income of the country.

11. NationalIncome
Traditional
Definition
 According to Marshall: “The labor and capital of a country
acting on its natural resources produce annually a certain
net aggregate of commodities, material and immaterial
including services of all kinds. This is the true net annual
income or revenue of the country or national dividend.”
 The definition as laid down by Marshall is being criticized
on the following grounds.
 Due to the varied category of goods and services, a correct
estimation is very difficult.
 There is a chance of double counting, hence National
Income cannot be estimated correctly.
 For example, a product runs in the supply from the
producer to distributor to wholesaler to retailer and then
to the ultimate consumer. If on every movement
commodity is taken into consideration then the value of
National Income increases.

12. NationalIncome
Modern
Definition
 Following are the Modern National Income definition
 GDP
 GNP
 Gross Domestic Product
 The total value of goods produced and services rendered
within a country during a year is its Gross Domestic Product.
 Further, GDP is calculated at market price and is defined as
GDP at market prices. Different constituents of GDP are:
 Wages and salaries
 Rent
 Interest
 Undistributed profits
 Mixed-income
 Direct taxes
 Dividend
 Depreciation

13. GrossNational
Product
 For calculation of GNP, we need to collect and assess the
data from all productive activities, such as agricultural
produce, wood, minerals, commodities, the contributions
to production by transport, communications, insurance
companies, professions such (as lawyers, doctors,
teachers, etc). at market prices.
 It also includes net income arising in a country from
abroad. Four main constituents of GNP are:
1. Consumer goods and services
2. Gross private domestic income
3. Goods produced or services rendered
4. Income arising from abroad.

14. GDPandGNP
onthebasisof
MarketPrice
andFactorCost
 a) Market Price
 The Actual transacted price including indirect taxes such as GST,
Customs duty etc. Such taxes tend to raise the prices of goods and
services in the economy.
 b) Factor Cost
 It Includes the cost of factors of production e.g. interest on capital,
wages to labor, rent for land profit to the stakeholders. Thus
services provided by service providers and goods sold by the
producer is equal to revenue price.
 Alternatively,
 Revenue Price (or Factor Cost) = Market Price (net of) Net
Indirect Taxes
 Net Indirect Taxes = Indirect Taxes Net of Subsidies received
 Hence,
 Factor Cost shall be equal to
 (Market Price) LESS (Indirect Taxes ADD Subsidies)

15. Gross National
Product

16. Gross National
Product
 Gross national product is another metric used to
measure a country's economic output. Where GDP
looks at the value of goods and services produced
within a country's borders, GNP is the market value
of goods and services produced by all citizens of a
country—both domestically and abroad.
 While GDP is an indicator of the local/national
economy, GNP represents how its nationals are
contributing to the country's economy. It factors in
citizenship but overlooks location. For that reason,
it's important to note that GNP does not include the
output of foreign residents.

17. NetDomestic
Product
 The net output of the country’s economy during a year
is its NDP. During the year a country’s capital assets
are subject to wear and tear due to its use or can
become obsolete.
 Hence, we deduct a percentage of such investment
from the GDP to arrive at NDP.
 So NDP=GDP at factor cost LESS Depreciation.
 The Accumulation of all factors of income earned by
residents of a country and includes income earned from
the county as well as from abroad.
 Thus, National Income at Factor Cost shall be equal to
 NNP at Market Price LESS (Indirect Taxes ADD
Subsidies)

18. Therearevarious
methodsfor
measuringNational
Income:
Gross Domestic Product (GDP)
Gross National Product (GNP)
Net National Product (NNP)
Net Domestic Product (NDP)
National Income at Factor Cost
(NIFC)
Transfer Payments
Personal Income
Disposable Personal Income

19. EconomicGrowthRate

20. WhatAre
GrowthRates
 Growth rates refer to the percentage
change of a specific variable within a
specific time period. For investors,
growth rates typically represent the
compounded annualized rate of growth
of a company's revenues, earnings,
dividends or even macro concepts, such
as gross domestic product (GDP) and
retail sales. Expected forward-looking or
trailing growth rates are two common
kinds of growth rates used for analysis.

21. WhatIsan
Economic
GrowthRate?
 An economic growth rate is the percentage change in the
value of all of the goods and services produced in a nation
during a specific period of time, as compared to an earlier
period. The economic growth rate is used to measure the
comparative health of an economy over time. The
numbers are usually compiled and reported quarterly and
annually.
 What Is Gross Domestic Product (GDP)
 Gross domestic product (GDP) is the total monetary or
market value of all the finished goods and services
produced within a country's borders in a specific time
period. As a broad measure of overall domestic
production, it functions as a comprehensive scorecard of a
given country’s economic health.

22. Howdoes
economyaffect
growthrate?
Technological advances and new
product developments can exert
positive influences on economic
growth. Increases in demand from
foreign markets can lead to higher
export sales. In any and all of these
cases, the influx of income, if big
enough, causes an increase in the
economic growth rate.

23. TypesofGross
DomesticProduct
(GDP)
 Nominal GDP: GDP evaluated at current market prices, in either the local
currency or in U.S. dollars at currency market exchanges rates in order to
compare countries' GDP in purely financial terms.
 GDP, Purchasing Power Parity (PPP): GDP measured in "international
dollars" using the method of Purchasing Power Parity (PPP), which
adjusts for differences in local prices and costs of living in order to make
cross-country comparisons of real output, real income, and living
standards.
 Real GDP: Real GDP is an inflation-adjusted measure that reflects the
quantity of goods and services produced by an economy in a given year,
with prices held constant from year to year in order to separate out the
impact of inflation or deflation from the trend in output over time.
 GDP Growth Rate: The GDP growth rate compares one year (or quarter) of
a country's GDP to the previous year (or quarter) in order to measure how
fast an economy is growing. Usually expressed as a percent rate, this
measure is popular for economic policy makers because GDP growth is
though to be closely connected to key policy targets such as inflation and
unemployment rates.

24. Whatarethe
impactsof
economic
growth?
Higher economic growth leads to
higher tax revenues and this enables
the government can spend more on
public services, such as health care
and education.
This can enable higher living
standards, such as increased life
expectancy, higher rates of literacy
and a greater understanding of civic
and political issues.

25. GrowthDomestic
Product

26. What is Gross
Domestic
Product (GDP)
The gross domestic product (GDP)
measures of national income and
output for a given country's
economy.
The gross domestic product (GDP)
is equal to the total expenditures
for all final goods and services
produced within the country in a
specific period of time.

27. Definitionof
Growth
Domestic
Product
 Definition: GDP is the final value of the
goods and services produced within the
geographic boundaries of a country during a
specified period of time, normally a year. ...
Output Method: This measures the monetary
or market value of all the goods and services
produced within the borders of the country.
 GDP of pakistan 2020 in percentage
 GDP Annual Growth Rate in Pakistan is
expected to reach -1.50 percent by the end of
2020, according to Trading Economics global
macro models and analysts expectations.

28. Definition of
GDP
GDP is “one of the primary indicators
used to measure the health of a
country’s economy” (Investopedia, 2009)
GDP indicates the size of an economy ,It
represents all goods and services
produced over a certain period.
GDP is usually compared to figures from
the previous year in an individual
economy.

29. Approaches of
calculating
GDP:
1. Production approach
2. Income approach
3. Expenditure approach
GDP = C + I + G + Xn
Calculating GDP includes adding
together private consumption or
consumer spending, government
spending, capital spending by
businesses, and net exports—exports
minus imports.

30. Here's a brief
overview of each
component
 Consumption: The value of the consumption of goods
and services acquired and consumed by the country’s
households. This accounts for the largest part of GDP.
 Government Spending: All consumption, investment,
and payments made by the government for current
use.
 Capital Spending by Businesses: Spending on
purchases of fixed assets and unsold stock by private
businesses.
 Net Exports: Represents the country’s balance of trade
(BOT), where a positive number the GDP as country
exports more than it imports, and vice versa.

31. GDP=Total
National Income+
SalesTaxes+
Depreciation +
NetForeign
FactorIncome
Total national income = Sum of rent, salaries
profit.
Sales Taxes = Tax imposed by a government on
sales of goods and services.
Depreciation = the decrease in the value of an
asset.
Net Foreign Factor Income = Income earn by a
foreign factor like the amount of foreign
company or foreign person earn from the
country and it is also the difference between a
country citizen and country earn.

32. GDPcan be
broken up into
two categories
Real and Nominal:
Real GDP:
A country's real GDP is the economic output
after inflation is factored in, while nominal GDP
is the output that does not take inflation into
account.
Nominal GDP:
Nominal GDP is usually higher than real GDP
because inflation is a positive number. It is used
to compare different quarters in a year.

33. current GDP
of Pakistan
 When the GDP rises, it means the economy is
growing. On the other hand, if it drops, the
economy shrinks and may be in trouble. But if the
economy grows to the point where inflation builds
up, a country may reach its full production capacity.
 Longer periods of negative GDP, which indicates
more spending than production, can cause big
damage to the economy. It leads to jobs loses
businesses closures and idle productive capacity.
 Pakistan, officially the Islamic Republic of
Pakistan, is a country in South Asia. It is the world's
sixth-most populous country with a population
exceeding 207.8 million.
 5.7% annual change

35. WhatIsGross
Domestic
Product(GDP)?
Gross domestic product (GDP) is
the total monetary or market value
of all the finished goods and
services produced within a
country's borders in a specific time
period. As a broad measure of
overall domestic production, it
functions as a comprehensive
scorecard of a given country’s
economic health.

36. Understanding
GrossDomestic
Product
 Gross Domestic Product (GDP) is the monetary value
of all finished goods and services made within a
country during a specific period.
 GDP provides an economic snapshot of a country, used
to estimate the size of an economy and growth rate.
 GDP can be calculated in three ways, using
expenditures, production, or incomes. It can be
adjusted for inflation and population to provide deeper
insights.
 Though it has limitations, GDP is a key tool to guide
policymakers, investors, and businesses in strategic
decision making.

37. Description:It
canbe
measuredby
threemethods,
namely,
 1. Output Method: This measures the monetary or market
value of all the goods and services produced within the borders
of the country. In order to avoid a distorted measure of GDP due
to price level changes, GDP at constant prices o real GDP is
computed. GDP (as per output method) = Real GDP (GDP at
constant prices) – Taxes + Subsidies.
2. Expenditure Method: This measures the total expenditure
incurred by all entities on goods and services within the
domestic boundaries of a country. GDP (as per expenditure
method) = C + I + G + (X-IM) C: Consumption expenditure, I:
Investment expenditure, G: Government spending and (X-IM):
Exports minus imports, that is, net exports.
3. Income Method: It measures the total income earned by the
factors of production, that is, labor and capital within the
domestic boundaries of a country. GDP (as per income method)
= GDP at factor cost + Taxes – Subsidies.