National income

Learning outcome

• the circular flow of income

• The expenditure method

• Reason for calculating national income

• Limitations of national income statistics

• Intellectual Propert

• GDP,GNP,GNI,GNDI

• The multiplier

• The business cycle

National income: the income accruing to the permanent resident in a country from current economic activity during a period of time

Recession: the fall in gross domestic products in two successive quarter

Circular flow of income

Leakages

Tax: household has to pay some of their income to the government (leakage for the household)

Savings: household have some of their income in financial institution ( leakages for the government as the money isn’t go around in the economy )

Imports: household spend some of their income on imports(goods in Ireland but from a different country).( leakages as they are not contributing to Ireland national income)

Injections

Government expenditure: government spend money on output firm ( eg schools ,hospitals)

Investment: financial institutions lend money back in to the economy for investment purposes e.g investors lend money to house developers

Exports: Irish firms receive money from consumer in foreign markets who buy their export. This contributes to irelands national income.

Measuring national income

The expenditure method

N.B

Y=C+I+G+(X-M)

Y- national income

C- consumption expenditure

I- investment expenditure

G- government spending

X- exports

M- imports

worked example

C = €2,500 m, I = €500 m, G = €600 m, X = €300 m, M = €200 m Using the expenditure method, calculate the national income.

Solution:

Y = C + I + G + (X - M)

/ = €2,500 m + €500 m + €600 m + (€300 m - €200 m)

= €3,700