SS

2._Measuring_Domestic_Output_and_National_Income__1_

Measuring Domestic Output and National Income

CONTENTS

  1. Assessing the Economy’s Performance

  2. Malaysia Macroeconomic Key Data

  3. Gross Domestic Product (GDP)

    • 3.1 A Monetary Measure

    • 3.2 Avoiding Multiple Counting

    • 3.3 GDP Excludes Nonproduction Transactions

    • 3.4 3 Ways of Measuring GDP

      • Production Approach

      • Expenditure Approach

      • Income Approach

    • 3.5 Top GDP Around the World

  4. Nominal GDP versus Real GDP

  5. Shortcomings of GDP

  6. Other National Accounts

    • 6.1 Gross National Income (GNI)

    • 6.2 Net National Income (NNI)

    • 6.3 Households’ Disposable Income

  7. Aggregate Demand & Supply of the Economy

ASSESSING THE ECONOMY’S PERFORMANCE

  • National Accounts (NA) measure an economy’s performance through income flows and expenditures over a period.

  • Serves a comparable purpose to income statements for businesses.

  • Data compiled by the Department of Statistics Malaysia (DOSM) based on United Nations 2008 standards.

  • Key data published by DOSM for Malaysia's economy (2023).

MACRO ECONOMIC KEY DATA

  • GDP at Constant 2015 Prices (RM billion): 1,346.2 (Q1) to 1,510.9 (Q3)

  • Sector Contributions:

    • Agriculture: 99.1

    • Mining: 92.9

    • Manufacturing: 307.6

    • Construction: 53.6

    • Services: 777.7

Changes In GDP

  • GDP at constant prices (% change) shows fluctuations across sectors, highlighting resilience or challenges in sectors like agriculture and services.

GROSS DOMESTIC PRODUCT (GDP)

  • Primary measure of economic performance is aggregate output of goods and services, commonly known as GDP.

  • GDP provides a quantitative measure of final goods and services produced in the economy.

  • Calculated either quarterly or annually.

A MONETARY MEASURE

  • Money serves as a common denominator for valuing diverse goods and services, allowing quantitative comparisons across different production years.

  • GDP is reported in three price types: Basic Price, Producers' Price, and Purchasers' Price.

AVOIDING MULTIPLE COUNTING

  • GDP must capture the market value of final goods only to prevent double counting.

  • Intermediate Goods are excluded to maintain accuracy:

    • Final goods are consumed or used for capital rather than resale.

    • Multiple counting can distort GDP values, illustrated through table examples.

GDP EXCLUDES NONPRODUCTION TRANSACTIONS

  • Nonproduction transactions have no relation to final goods production and include:

    • Financial transactions like social security and private transfers.

    • Secondhand Sales, which yield no new production value.

3 WAYS OF MEASURING GDP

  1. Production Approach - Summation of value added from produced goods and services.

  2. Expenditure Approach - Total spending on final goods, including:

    • Private Final Consumption Expenditures

    • Government Expenditures

    • Gross Capital Formation

    • Net Exports

  3. Income Approach - Total income accruing from production, incorporating wages, rent, interest, and profits.

Application of Measurement Approaches

  • All approaches theoretically yield identical GDP values but may differ in practice, necessitating statistical discrepancies for consistency.

TOP GDP AROUND THE WORLD

  • In 2021, Malaysia’s GDP was USD 335 billion; not within the top 20 global economies.

NOMINAL GDP VERSUS REAL GDP

  • Understanding the difference between nominal and real GDP is essential for analyzing economic performance relative to inflation.

  • Real GDP adjusts for price level changes, using a base year index for accurate representation of output.

SHORTCOMINGS OF GDP

  • GDP does not capture overall living standards. Key shortcomings include:

    • Nonmarket Activities like homemaking.

    • The value of Leisure time.

    • Quality improvement of products.

    • The Shadow Economy, which is beyond official economic measures.

GROSS NATIONAL INCOME (GNI)

  • GNI includes income from abroad and factors in net income from foreign responsibilities versus domestic income generation.

  • Important for evaluating national wealth and economic well-being.

NET NATIONAL INCOME (NNI)

  • NNI accounts for capital depreciation, crucial for understanding the sustainable income generation in an economy.

HOUSEHOLDS’ DISPOSABLE INCOME

  • Reflects the income available post-taxation and is pivotal for analyzing consumption behavior.

AGGREGATE DEMAND & SUPPLY OF THE ECONOMY

  • Aggregate Demand (AD) encompasses consumption, investments, and government spending.

  • Economic equilibrium is achieved when the total supply meets total demand.

  • Integral for understanding fiscal policy impacts.