LC Economics- National Income

national income

The income acuring to the permanent residents of a country from current economic activity during a period of time

How is National Income used?

Indication of wealth of a country

• rise in national income can indicate that the economy has grown

• fall in national income over 2 quarters would indicate the economy is in recession

Recession

Fall in GDP in 2 successive quarters

circular flow of income

shows the flow of money in the economy between households, firms, the gov. , financial institutions and foreign markets.

LEAKAGES

result in a reduction in aggregate demand

-taxes

-savings

-imports 

INJECTIONS

result in an increase in aggregate demand

-government expenditure

-investment

-exports from firms

impact of the shadow/ hidden economy on the economy

• reduced sales and profits for legitamite retailers 

• unemployment rises

• reduced gov. revenue ex. less VAT and exise duty

• state must allocate resource sin reducing the size of the hidden economy

how to reduce the size of the hidden economy

• additional gardaí to enforce laws 

• increased funding towards campaigns 

• lowering of indirect taxes would remove incentive

measuring national income

marginal propensity to import (MPM)

reasons for calculating national income

Limitations of national income statistics

intellectual property 

patent 

trademark

copyright

tradesecret

GDP 

(gross domestic product)

GNI

(gross national income)

GDP VS. GNI

Income earned from irish factors abroad

Income earned by foreign factors in ireland