JB

natuonal income and GDI

National Income

  • Income to residents from economic activity.

Circular Flow of Income

  • Flow of money between companies and households.

Expenditure Classification

  • Aggregate demand: Y = C + I + G + X – M

Propensity to Consume

  • APC: Proportion of income spent.

  • MPC: Proportion of extra income spent.

  • Example: MPC = 0.8.

Determinants of Consumption

  • Income, credit, interest rates, income tax.

Determinants of Investment

  • Cost of capital, expectations, government policy, capacity, technology.

  • Example: R&D tax credits.

Determinants of Exports

  • Incomes abroad, competitiveness, euro value, incentives.

Determinants of Imports

  • Availability, prices, income, euro value, MPM.

Marginal Propensity to Import (MPM)

  • Proportion of extra income spent on imports.

The Multiplier

  • Injection impact on national income.

    • Formula: Multiplier = 1 / (1 - MPC)

    • Example: MPC = 0.8, multiplier = 5.

Marginal Propensity to Tax (MPT)

  • Percentage of tax from extra income.

    • Formula: 1 / (1 - MPC + MPT)

    • Example: 20% tax, multiplier = 0.83.

Marginal Propensity to Save (MPS)

  • Percentage of savings from extra income.

Economic Effects of Increased Savings

  • Reduced spending, increased investment funds, reduced inflation, reduced imports.

Marginal Propensity to Import (MPM)

  • Percentage of money spent on imports.

    • Formula: Multiplier = 1 / (1 - MPC + MPM)

Transfer Payments

  • Payments without factor production.

    • Examples: Social welfare, pensions.

Impact of Transfer Payments

  • High MPC, increases circular flow.

Impact of Economic Shocks

  • Negative: Increased oil prices.

  • Positive: Data center opening.

Trade Cycles

  • Recurring economic expansions and contractions.

Phase 1: Recovery/Expansion

  • Growth in GDP, employment, investment.

Phase 2: Boom/Growth

  • Increased employment, inflation, asset bubbles.

Phase 3: Recession

  • GDP falls, unemployment rises.

Phase 4: Depression/Slump/Trough

  • Real GDP decline > 10%, high unemployment.

Measuring National Income

  • Income, output, expenditure methods.

Key Terms and Definitions

  • Gross: Before deduction.

  • Domestic: Home produced.

  • Product: Amount produced.

  • National: Focused on residents.

  • Factor costs: Costs of production factors.

  • Net factor income: Income earned by residents abroad - income earned by foreigners in the country.

  • GDP: Output by factors in the domestic economy.

  • GNP: Output by Irish-owned factors.

  • GNI: Domestic and foreign income earned by residents.

  • GDNI: Income available for savings and consumption.

Uses of National Income Statistics

  • Standard of living, international comparisons, policy formulation, policy evaluation.

GNI* (GNI Modified)

  • GNI excluding effects of redomiciled companies and IP depreciation.

    • Introduced to remove globalization effects.

    • Formula: Gross national income - adjustments

GDP vs. GNP

  • Difference is net factor income from abroad.

    • GDP > GNP in Ireland due to profit repatriation.

    • GDP: economic activity, GNP: standard of living.

GDP vs. GNI

  • US company profits in Ireland count towards Irish GDP but US GNI.

    • GNI is a better reflection of economic welfare.

GNP vs. GNI

  • Difference is interest and dividends.

GNI vs. GNDI

  • GNI captures incomes related to production factors; GNDI includes unilateral transfers.

Best Indicator to Use

  • GNDI is the better indicator of living standards.

Per Capita Measurements

  • Takes population into account for comparisons.

Limitations of National Income Statistics

  • Population distortions, inflation, welfare, distribution, hidden social costs, international comparisons.

The Hidden Economy

  • Unrecorded economic activity.

Economic Effects of a Rise in the Hidden Economy

  • Loss of tax revenue, decline in legitimate business, increased enforcement costs, pressure on government finances.

Social Effects of the Hidden Economy

  • Increased crime, vicious cycle, public outrage, decreased public services.

Strategies to Discourage the Hidden Economy

  • Reduce taxes, better enforcement, educate the public.

Exam Focus

  • Calculations and formulas

Gross domestic product

  • C + I + G + (X – M)

Gross national product at current market prices

  • GDP + Net factor income from the rest of the world

Gross national product (GNP) at factor cost

  • GNP @ market prices + price subsidies – indirect taxes = GNP @ factor cost

Gross national income (GNI)

  • Measures total income earned by a country’s residents

    • GNP @ Current market prices + EU Subsidies – EU Taxes = GNI @ current market prices

Gross national disposable income (GDNI)

  • Measures the income available to the nation for gross savings and final consumption.

    • $$GNI @ current market prices + current transfers from the rest of the world