This document provides information about macroeconomics and measuring national income. It discusses the key topics of macroeconomics including full employment, economic growth, price stability, and external balance. It also outlines the three approaches to measuring national income - the income approach, expenditure approach, and output approach. The roles of government in implementing monetary and fiscal policy to influence the national income are also covered.

1. ASSIGNMENT ON
‘MACROECONOMIC’

2. Bil Particulars Pages
TABLE OF CONTENT

3. Introduction to economics
Do you still remember what the study of economics is all about when you study
microeconomics in your first topic?
Our resources are limited but our wants are unlimited. Thus, the study of economics can be
defines as:
The study of how individual and societies choose to allocate the scarce resources to produce
goods and services, and how those goods and services are allocated among individuals.
The study of microeconomics can be subdivided into microeconomics and macroeconomics.
The term ‘micro’ means something small while ‘macro’ indicates something that it
comprehensive or large.
Macroeconomics is the study of economy as a whole at the aggregate level.
If macroeconomics studies on how price level foe one particular good is determined, the
macroeconomics study will talk about the general price level of all goods and services in the
economy.
When microeconomics looks on the most optimum level of production of one firm, the
macroeconomics will measure the total production of all goods and services in the economy
as the national output.
In macroeconomics to, we will study how the total income that all of us earned can be defined
as the national income of our country.

4. Macroeconomics issues
There are four major reasons why the studies of economics are done at the macro level, based
on the economics perspectives.
i. To achieve ‘full employment’
The objectives of full employment has always been the important concern of every economy
included Malaysia and all developing country.
Full- employment is a situation where all economic factors are fully utilized and there is only
frictional unemployment that exists.
Unemployment derived from situation where people who able and want to work but they
failed to find the suitable job.
To achieve zero rate of unemployment is impossible because there tends to be individuals
who are changing their jobs or school – leavers and graduates who are still looking for jobs.
This is known as the frictional unemployment. This type of unemployment is temporary only.
The increases rate of unemployment will make the resources waste and the standard of living
will decreases. This situation will bring many problems to the country such as economics,
social and also political problems.
That is why we need to study the economy at the aggregate (macro) level. Every economy
will try to achieve this full – employment level as it reflects their efficiency in utilizing all of
their economic resources.

5. ii. To obtain a satisfactory rates of ‘economic growth’
Economic growth is situation where the economy experiences an increase in its
‘national income over a period of time.
A positive economic growth indicates that the country’s national income
increases over the years. It can be calculated as:
Rate of economic growth in Year 1 = 100* Real NI 1 – Real NI 0
Real NI 0
It is favorable for every economy to get a positive economic growth because it shows that the
country’s standard living improves. The standard of living is measured by the total amount of
goods and services that individuals in the economy can enjoy. The higher the NI of the
country, the more the goods and services are produced and consumed by individuals and thus
the better it will be for their welfare.
Hence, it is important for a country to obtain a satisfactory economic growth as it can
contribute to a higher standard of living and individual’s welfare.
goods & services NI economic growth standard living & welfare

6. iii. To maintain the stability of the ‘general price level’
The general price level represents the overall average price level of goods and
services in the economy.
This general price level also represents the rate of inflation in the economy. As
we know prices and goods always changing. Some goods might experiences an
increase in their prices and others might decrease.
If the overall general price level increases generally, the rate of inflation is
shown is positive. For example, if the rate of inflation is 4% it means that the
price level has generally increased by 4%. Hence, it is one of the
macroeconomics objectives that this general price level has to be maintained as
stable. It has to be controlled so that no serious inflations occur. If the rate of
inflations is high, then the values of money will decrease. Inflation leads to a
decline in the value of money or the ‘purchasing power’ of the money.
Therefore, the general price level must try to be maintained as stable so as to
keep the value of the money stable and secured.
iv. To achieve external sector stability
Balance of payment concerns with the payment and income received by the
economy from its international trade activities. Payment to other countries or
the outflow of money to other countries is made when we buy or import goods
and services from those countries. On the other hand, when we export or sell
our goods and services to other countries we will receive money and there will
be an inflow of money into our country.

7. local currency = purchasing power international country
For your information, all this issues is calculated by Gross Domestic Product & Gross
National Product.
What are Gross Domestic Product (GDP) and Gross National Product (GNP)?
The Gross Domestic Product or GDP is a total output produced within the country regardless
it produced by local or foreigner factor of productions. The GDP considers the market value
of goods and services to achieve the stability of economic growth and the overall economic
health. As an economic measure, the GDP can be very useful yardstick.
The Gross National Product or GNP is differing from GDP. It is because GNP is the total
output by local factor of production regardless whether it is produce within the country or the
outside country or everyone in the world.
A variety of measures of national income and output are calculated to estimate the economic
activity done in a country. GDP and GNP is the one method to measure national income.
Government responsibilities
‘Government’ may be broadly defined as a political and big organization comprising the
individuals and all the institution to apply and enforces laws and public policies of the state.
Government must perform a several functions in order to maintain law and order in the
country so that people could live in peace and harmony. The establishment of laws is actually

8. to regulate the behavior of citizens. Besides that, government also provides essential services
to promote the general welfare of the people. For examples public facilities, good
maintenance, and utilities such as water, electricity and telecommunication facilities and
others.
There are 3 types of policy that government implemented to control over their national
income.
Firstly, the government used the Monetary Policy as a tool. They use monetary policy to
influence and control the supply and the availability of money. Monetary policy is usually
administered by a Central Bank of Malaysia, which is Bank Negara Malaysia (BNM). The
regulation of the money supply by a central bank is usually to control inflation and stabilize
currency.
There are various instruments that initiate monetary policy such as open market operations,
the discount rate and reserves ratios.
As the country’s monetary authority, Bank Negara Malaysia is responsible to maintain
monetary stability. Monetary stability refers to the stability of the value of the Malaysian
currency, the ringgit. The best way to ensure that the values of the ringgit are preserved is by
ensuring price stability, that, to ensure that inflation in the country remains low and stable.
The second tool available to government is fiscal policy. Fiscal policy is the management on
government revenues and expenditure or spending in the country. The management is either
from taxes revenues or other various revenues. Basically the 60% comes from the taxes
revenues and the remaining comes from the others revenue. Example of revenues comes from
the sold assets, government assets and compound money.

9. National Income
Definition of National Income
National Income is the total amount of income received by the factors of production in a
country at a given period of time.
Economic agents are the individuals who factors of production where there are four major
classifications of factors in the economy namely labour, land, capital and entrepreneur. These
economic agents perform the activities that contribute to the production of the total output in
the economy.
A full-time housewife is not regarded as an economic agent because she does not hold any
factors. So do full-time students and pensioners. A housewife might receive a monthly
allowance from her husband, a student might receive some money from his parents as his
pocket money and pensioners might receive some money as their pensions. However, the
money received by them cannot be calculated as part of NI because those housewives,
students and pensioners do not produced any goods or services, which can be purchased by
other individuals.
Nevertheless, if the housewife sells nasi lemak to get some extra income or the students work
as part-time sales promoters during school holidays; then the income received by them should
be taken into NI accounts since they had produced some output.

10. Measuring National Income
Measuring National Income is important, as it is the basic data required by most policy-
makers of any economy. The data from NI is very useful as an indicator for many other
significant measurements in an economy. Therefore, to measure NI is to total up the income
received by all economic agents in every sector of the economy.
Generally, there are 4 main sectors in the economy namely households, firms, government
and international trade activities. Households constitute all of individuals who make
purchases of goods and services produced in the economy and they also hold factors of
productions. Those who own factors of production are called the economic agents.
A firm is the sector where all factors will be combined as inputs to produce the output that is
the goods and services that can be consumed.
Entrepreneur are one of the factors within the firm and they are the want is responsible to mix
all the factors in the production processes.
The government sector also exists and they act as policy makers in the economy. The
government also takes part in producing output and involve in the activities of import and
export. The international trade sector comprise of all the activities of export and import with
the other countries.
There are three different approaches to measure NI; which are:
1) Income approaches

11. 2) Expenditure approaches
3) Output approaches
All three different ways of measuring NI should give the same answer. This means that
the terms ‘national output’, ‘national expenditure’, and ‘national income’ can be used
interchangeably. However, the economist typically use the term ‘National Income ‘and
that is also why the study of this topic is called as the ‘National Income’ accounting.
National Product = National Expenditure = National Income
Remember that, when there is an amount of products being produced in the economy, an
amount of income will be created and that means an amount of expenditure will be made.
National Income Calculation: Using the 3 Approaches
1) Income approach
The total income received by the owner of production’s factors from productive
activities.
There are 4 major classifications of factors, which are labour, land, capital and
entrepreneur and the payment to them are in terms of wages, rent, interest and profit
respectively. Thus, we are going to total up the payments to them, as those are their
income.
Nevertheless, keep in mind that transfer payment such as pensions, scholarships and
welfare must not be included.

12. Labour : wages; Land: rent; Capital: interest; Entrepreneur: profit
Wages + rent + interest + profit + income from self employment = GDP at FC

13. TABLE 1.0: NI CALCULATION USING INCOME APPROACH
ITEMS $MILLION
Income from self employment (salaries & wages) 500
Income from self-employment 350
Rent and interest 290
Companies’ profit: distributed profit(dividend) 350
Undistributed profit(retained profit) 200
(-)closing stock (100)
Gross Domestic Income at Factor Cost 1590
(+)factor income from abroad 450
(-)factor payment to abroad (400)
Gross National Income at Factor Cost 1640
(-)depreciation (200)
National Income 1440
The above table exhibits the format of the NI calculation using the income approach.
2) Expenditure approach
Total amount of spending on final goods and services by the economic sectors
at the given period of time.
Based on this approach, we must add together the total expenditure made on our
country’s consumer goods and services plus the total expenditure on investment goods
and net addition to stock.
Economic sector Household: private consumption spending (C)
Firm: private investment spending (i)
Government: Government spending
Public consumption spending
Public investment spending
C+I+G+(x-m)+ Change in Inventories = GDP at MP

14. The table 1.1 below shows the example of the National expenditure calculation:
TABLE 1.1: NI CALCULATION USING EXPENDITURE APPROACH
ITEMS $MILLION
Consumer expenditure ( consumption) 310
Public/government expenditure 570
Gross Investment 580
Increase in stock 180
Export 410
(-)import (370)
Gross Domestic Expenditure at Market Price 1680
(-)indirect taxes (240)
(+)subsidies 250
Gross Domestic Expenditure at Factor Cost 1690
(+)factor income from abroad 450
(-)factor payment to abroad (400)
Gross National Expenditure at Factor Cost 1740
(-)depreciation (200)
National Income 1540
3) Output/ product approach
According to this approach, National Product is:
Total amount of output produced by economic sector based on production activities at the given
period of time in a country by using the method of value added.
Value added is the increase in the value of input during production process.

15. There are many sectors in an economy like manufacturing, agricultural, construction, banking
and insurance, forestry and others. The total value of products and services by these sectors
will give us the ‘Gross Domestic Product at market price. These are the products that are
produced domestically and their values are at the market price because we take those values at
their prevailing market price.
Below is the formula to calculate by using output approach:
Primary sector + secondary sector + tertiary sector + import –bank
services = GDP at MP
There are various types of sector and sub-sector that involve in the measurement by
using the output approach.
Primary sector
Agricultural -mining and querying
Fisheries
Groceries
Secondary sector
Manufacturing
Construction
Tertiary sector
Government Transportation
Finance Communication
Utilities Hotels

16. Table 1.3 below exhibits the example of NI calculation using the product/ output approach.
TABLE 1.2: NI CALCULATION USING OUTPUT/PRODCUT APPROACH