National Income Flashcards

Flashcards covering key vocabulary and concepts related to national income accounting.

Withdrawal

A leakage from the circular flow of income or any part of income that is not passed on within the circular flow.

Injection

An addition to the circular flow of income.

National Income

The net market value of all final goods and services produced by a nation's resources during a given time period.

Investment

Spending on capital goods, with the aim of increasing the productive capacity of firms.

Net Investment

New investment minus replacement investment.

Savings

Income that is not spent and it accumulates in the financial sector.

Government Spending

Expenditure by the government on goods and services or to hire firms to produce public and merit goods.

Exports

Total expenditure by foreign consumers on locally produced goods and services.

Taxation

Compulsory payments to the government which leak out of the circular flow.

Imports

Spending on foreign goods and services.

Gross Domestic Product (GDP)

Shows the value of final goods and services produced by the factors of production within the geographical boundaries of an economy in a given year.

Gross National Product (GNP)

Shows the value of final goods and services produced by the factors of production owned by nationals of a country in a given year, regardless of location.

GNP Formula

GNP plus Net Property Income from abroad (income inflows minus income outflows).

Net National Product (NNP)

Gross national product minus capital consumption or depreciation.

Personal Income Formula

NNP + Transfer Payments - Retained Earnings - Corporation Tax

Disposable Income

The part of income that is actually received by households: it gives the after-tax income of households.

Disposable Income Formula

Personal Income - Income Taxes

Intermediate Good

Used as input by other firms in the production process.

Final Good

Not used as input by other firms but consumed by customers.

Expenditure Approach Formula

GDP at market prices = C + I + G + X - M

Consumers' expenditure (C)

The amount spent by consumers on goods and services.

Investment spending (I)

Spending by firms on capital goods.

Government spending (G)

Government recurrent and capital spending (excluding transfer payments).

Export spending (X)

Export spending.

Import spending (M)

Import spending.

Factor cost formula

Market price minus indirect taxes plus subsidies

Black markets

All transactions of goods and services forbidden or controlled by governments.

The non-monetized/non-monetary sector

Charity work, housework, subsistence farming, and barter activities are excluded.

Tax Evasion

Persons may not completely disclose all financial information to avoid paying the full amount of taxes; as a result of this non-disclosure GDP is understated.

Green GDP

A measure of economic growth, having adjusted for environmental consequences of that growth.

Standard of living (SOL)

Measures the quantity of goods and services that can be purchased with consumers' income. It therefore focuses on the purchasing power or real income of consumers.

Quality of life

A broad and somewhat subjective measure of how consumers live daily-examines factors such as status of women, pollution, crime etc.

Real National Income

Nominal NI x 100 / Price Index

Real GDP

Is the measure of the value of goods and services produced using constant prices.

Nominal GDP

Is a measure of the value of goods and services produced at current prices.