1.

What are the goals of marcoeconomics, Instruments of marcoeconomics

and The national income accounting?
 Marcoeconomics

 Marcoeconomics studies of the aggregate economy or as a whole.

 The primary goals of marcoeconomics are to achieve stable economic growth and maximize
the stardard of living.
 Economc indicators are good source of information to marcoeconomic performance.
 Monetary policy and fiscal policy are tools used by the government to control economic
performance and reach marcoeconomic goals.

 Goals of marcoeconomics

 The overarching goals of marcoeconomics are to maximize the stardard of living and achieve
stable economic growth.
 The goals are supported by objectives such as:
 Minimizing unemployment
 Increasing productivity
 Controlling inflation and more
 Goals of marcoeconomics
 To achieve high economic growth
 To reduce unemployment
 To attain stable prices
 To reduce budget deficit and balance of payment(BoP) deficit
 To ensure fair distribution of income
 High level of employment and low involuntary unemployment
 In other words,the goals of marcoeconomics can be given as ways towards full employment,
price stablility ,economic growth and fair distribution of income among citizens of acountry.

 Instruments of marcoeconomics

 The three stardard marcoeconomic policy instruments that governments use to stabilize
the marco-economy are:
 Fiscal policy
 Monetary policy and
 Exchange rate policy
 Fiscal policy
 Sources of fiscal revenue and policy constrains:
 Public resource mobilization
 Borrowing constraints
 Aid delivery and absorption

 Monetary policy
 The effectiveness of monetary policy
 Monetary policy instruments

 Indirect monetary policy instrument

 Direct mechanisms and other microeconomic measurses
 The marcoeconomic dimensions of prudential regulation
 Exchange rate policy

 Impact of devaluation

 National Income Accounting(NIA)

 The national income accounting : is an accounting record of the level of economic activities
of an economy.
 It is a measure of an aggregate output, income and expenditure in an economy.
 It enables us to measure the level of total output in a given period of time, and to
explain the causes for such level of performance.
 It enables us to observe the long run trend of the economy.
 It provides information to formulate policies and design plans.

2.What are measure approaches to national income (GDP) and other income
accounts (GNP,NNP,NI,PI and DI)?
 Gross Domestic Product (GDP)

 It is the total value of currently produced final goods and services that are produced within a
countrys boundary during a given period of time, usually one year.
 Is a score card of the economy.
 It is the measure of national income,national output and national expenditure.
 Simply GDP is the value of final products produced within country border either by citizens
and non- citizens.
 Definition of Gross Domestic Product(GDP):
 It measure the current production only.
 It measure the value of final goods and services produced within the
boundary/territory of acountry irrespective of who owns that output.
 In measuring GDP, we take the market values of goods and services:
o Pi= series of prices of output produced in diffent sectors of an economy in
certain period.
o Qi= the quantity of various final goods and services in aneconomy.

 Gross National Product (GNP)

 Is the total value of final goods and services currently produced by domestically owned
factors of production in a given period of time usually one year, irrespective of their
geographical locations.
 GNP stands for the gross national product.
 GNP=GDP +NFI
 The mony value of all finished goods and services produced by countrys citizens during a
period of one year regardless of location of production.
 OR output generated by countrys business located domestically or abroad.
 Simply,GNP is the value of final products produced by only countrys citizens both
domestically and abroad.
 Basically: there are three approaches to measure GDP/GNP.These are:
 Product/value added approach.
 Expenditure approach and
 Income approach.

 Other Income Accounts

 Apart from GDP and GNP, there are also other social accounts which have equal
importance in marcoeconomic analysis.These are;
 Net national product(NNP)
 National income (NI)
 Personal Income(NI)
 Personal Disposable Income (PDI)

 Net National Product(NNP)

 As a measure of the economys annual output may have defect because it fails to take into
account capital consumption allowance, which I necessary to replace the capital goods
used up in that years production.
 Hence, net national product is a more accurate measure of economys annual output than
gross national product and it is given as:

Net National Product=Gross National Product-Capital consumption Allowance

 NNP standsfor the Net National Product,it is the way to measure success in minimum
production stardard.
 It is the more accurate measure of final goods and services by country.

NNP=GNP__Depreciation

 Dwpreciation is the devoluation of fixed capital through wear and tear associated with its
use in productive activities or potrion of the capital used in the production of goods and
services.
 Therefore depreciation is the wear and tear of capital and capital ages over time loses its
value.

 National Income(NI)

 National income is the value a countrys final output of all new goods and services produced
in one year.
  It is the total factor income.
 The sum of the income received by resource owners in the form of rent, wages, interest
and profit for the use of their resources in the production of goods and servies.
 GDP is the measure of national income, national output and national expenditure.
 However,from the components of NNP,indirect business tax, which is collected by the
government, does not reflect the productive contributions of economic resources because
government contributes nothing directly to the production in return to the indirect business
tax.
 Hence, to get the national income ,we must subtract indirect business tax from net national
product.
National income=Net National product_ Indirect Business tax

 Personal Income (PI)

 Refers to income earned by persons or households. Persons in the economy may not earn
all the income earned as national income.
 Total income received by the individuals a country from all sources before taxes in one year.
 PI= salarie/wages Received + Interest received + Rent received + Dividends received +
Any transfer payments.

PI=NI_[social security contribution + corporate income tax +retairned corporate profit] +

[public transfer payments + net interest on government bond]

 Amount of national income received by resident of a country from employment ,

dividend, rent, wages, profit and transfer payment.
 It includes earned income, capital gain and amount of income from all types of
activities.

 Disposable Income(DI)

 Final income that remains with individual after paying taxes towards government.
 Which individual can spend on the purchase of goods and services.
 It is found by deducting tax and non-tax payments to governments from personal
income.

Disposable income = Y-T

Personal income – Direct taxes

3. Nominal versus Real GDP , The GDP deflator and the consumer Price
Index (CPI)?
  Nominal versus Real GDP

 Nominal GDP: is the value of all final goods and services produced in a given year when
vaiued at the prices of that year. That is, nominal GDP =£PiQi Where, P is the general
price level and Q is the quantity of final goods and services produced.
 Nominal GDP: The market value at current price of a nations output of goods and
services.

 Real GDP: is the value of final goods and services produced in a given year when valued
at the prices of reference base year. By compering the value of production in the to years
at the some prices , we reveal the change in output.

 Hence,to be able to make reasonable comparisons of GDP overtime we must adjust for
inflation.
 The value of a nations output goods and services in a particular adjusted for changes in
the prices of goods and services from a base year.
 Quantity of output in the current x price of the output in a base year.

 The GDP deflator

 The calculation of Real GDP gives us a useful measure of inflation known as the GDP
deflator.
 The deflator is the ratio of nominal GDP in a given year to real GDP of that year.
 The deflator, also called implicit price deflator, is a measure of inflation. It is the ratio of the
value of goods and services an economy produces in a particular year at current prices
to that of prices that prevailed during the base year.
 This ratio helps show the extent to which the increase in gross domestic product has
happened on account of higher prices rather than increase in output.
 Since, the deflator covers the entire range of goods and services produced in the
economy.

 As against the limited commodity baskets for the whole sale or consumer price indices.
 It is seen as a more comprehensive measure of inflation.