NATIONAL INCOME

CONCEPTS & MEASUREMENT

PRESENTED BY S.Palmer
 INTRODUCTION

⚫ National Income is a measure of economic

activity in an economy over a given period,
usually one year.

⚫ National Income means the total value of final

goods and services produced annually in a
country.

NB The terms National Income and GDP are used

interchangeably.
 METHODS OF MEASURING
NATIONAL INCOME

⚫ Income Method: The net income payments received by all citizens of

a country in a particular year are added up i.e the rewards from all
factors of production.

⚫ Output Method: This is summing up the value of output produced by

all firms in the economy (final goods and services only)

⚫ Expenditure Method: The total expenditure incurred by the society in

a particular year is added together, ie, C + I + G + (X-M)

C = Consumers Expenditure I = Investment Expenditure

G = Government’s Expenditure X = Exports I=Imports
⚫ For example, when you go to the grocer to buy 1kg
of flour, the $10 you pay over the counter
represents expenditure on your part.
⚫ It represents income received on the part of the
seller
⚫ It also represents the value of the flour – output
 The Income Method

Factor of Production Factor Income Amount

Land Rent $10 000 000

Labour Wages $30 000 000

Capital Interest $40 000 000

Enterprise Profit $20 000 000

Total Factor Incomes $100 000 000

 The Output Method

Stage of Production Value of Final Output

Primary $2000

Secondary $7000

Tertiary $10 000

Total Value of Final Output $19 000

 The Expenditure Method

C + I + G + (X – M)

Consumer Expenditure = 120M

Investment Expenditure = 64M
Government Expenditure = 89M
Imports = 54M
Exports = 40M

Calculate GDP using the expenditure method.

 Nominal Output

⚫ Nominal output is the level of output produced in a

country for a given year, measured in prices for that
year.
 Real Output

⚫ Real output is level of output produced in a country

for a given year, measured in prices for a base year.

⚫ When Economists wish to eliminate the effects of

inflation on the value of output, they measure output
for a number of years at the prices prevailing in one
year.
⚫ In this way, comparisons can be made to see how
much real output has changed.
 Potential Output

This is the level of output that an economy is capable

of producing when all its factors of production are fully
employed.

If the actual output produced is less than potential

output, it means that there are unemployed resources
in the economy.
 Real vs Nominal GDP
⚫ Nominal GDP
⚪ Value of output measured at actual prices (current dollar output)
⚪ Does not correct for inflation

Nominal GDP = Current year Quantities x Current year Prices

⚫ Real GDP
⚪ Value of output based on prices of some base period (“constant” dollar
output)
⚪ eliminates effect of inflation

Real GDP = Current year Quantities x Base year Prices

 Uses of National Income

National Income Statistics have several uses:

⚫ It is used to measure the level of economic activity in
the country.
⚫ Governments use national income statistics as an
indicator of the standard of living of the people in a
country.
⚫ Allows governments to determine when there is
economic growth.
⚫ Allows international agencies to classify countries
according to their level of development.
 Gross National Product (GNP)

GNP is the value of final goods and services that

Jamaica’s citizens produced during a particular time
interval regardless of t heir location.

NB…Regardless of their location means that GNP

includes production which is done by Jamaicans
anywhere in the world.
 Calculating GNP

⚫ GNP is adjusted for net property income from

abroad. This requires that receipts of factor incomes
from the rest of the world are added to GDP, while
payments of factor incomes to the rest of the world
are subtracted.

⚫ GNP = GDP + income inflows – Income outflows

OR
GNP = GDP + Net Property Income from abroad
End of Presentation