NATIONAL INCOME ACCOUNTING

DEFINITION OF NATIONAL INCOME

National income is the flow of goods and services by a nation over a period of time, usually a year

Example:

If Malaysia produces palm oil, cars, electronics, and services worth RM 1.5 trillion in a year, and also receives income from Malaysians working overseas, all of this combined forms the national income of Malaysia for that year.

CONCEPT OF NATIONAL INCOME


GROSS DOMESTIC PRODUCT (GDP)

Gross Domestic Product (GDP) is a measure of the total value of all final goods and services produced within a country’s borders over a specific period of time, usually one year.

Example:

If Malaysia produces goods and services like palm oil, furniture, electronics, and education services worth RM 1.7 trillion in a year, that amount represents Malaysia's GDP.

GROSS NATIONAL PRODUCT (GNP)

GNP is the total market value of all final goods and services produced by a country’s residence in a given time period.

Example:

  • If a Malaysian-owned factory in Indonesia earns RM 50 million, that income is counted in Malaysia's GNP, not its GDP.

  • If foreign companies in Malaysia earn RM 40 million, that income is included in Malaysia’s GDP, but excluded from GNP.

MARKET PRICE (MP)

Market price refers to the current price in the market through the forces of demand and supply. Market prices are the actual price paid by the consumers.

Example:
If a shirt costs RM 90 before tax, and there’s a 10% tax, the market price becomes RM 99.

FACTOR COST (FC)

Factor cost is the real prices that is earned by the producers or sellers.

Example:
If the same shirt above is sold for RM 99 (market price), and the tax is RM 9, then the factor cost is RM 90.

NATIONAL INCOME (NI)

NET NATIONAL PRODUCT (NNP)

Net National Product (NNP) is the total market value of all final goods and services produced by a country’s residents (nationals) in a year, after deducting depreciation (also called capital consumption).

Example:

Macroeconomics vs Microeconomics

  • Scope

    • Macroeconomics: Studies the economy as a whole.

    • Microeconomics: Focuses on individual units like consumers and firms.

  • Main Focus

    • Macroeconomics: Topics like inflation, unemployment, GDP, and economic growth.

    • Microeconomics: Topics like demand, supply, pricing, and production decisions.

  • Level of Analysis

    • Macroeconomics: Aggregate level – total income, output, and expenditure.

    • Microeconomics: Individual level – how a household or firm behaves.

  • Examples

    • Macroeconomics: Government policies to control inflation.

    • Microeconomics: How a coffee shop sets its prices.

  • Decision Makers

    • Macroeconomics: Government and central bank.

    • Microeconomics: Individuals and private businesses.

The Three Major Goals of Economics

Economic growth refers to the increase in a country’s output of goods and services over time. It is commonly measured by the rise in Gross Domestic Product (GDP), and it reflects improvements in the standard of living. For example, when a nation produces more cars, food, and technology each year, it indicates economic growth.

Full employment aims to ensure that most people who are willing and able to work can find jobs. Low unemployment rates reflect efficient use of a country’s labour resources, which supports income generation and social stability.

Price stability means maintaining steady prices without excessive inflation or deflation. Stable prices protect consumers' purchasing power and help businesses plan for the future. For instance, keeping inflation around 2% is often considered healthy for economic stability.