Revise Econs: NIA

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Macro goals (internal)

• Economic growth: Annual percentage increase in economy's level of real output over time
  • Actual growth: Actual...
  • Potential growth: Speed at which economy could grow
• Low inflation (inflation: sustained increase in GPL)
• Low unemployment (unemployment: no. of people of working age that are out of work but willing and able to work)

GDP: Total market value of all final goods and services newly produced in a year within the geographical boundaries of a country
GNP: Total market value of all final goods and services newly produced in a year by factors of production owned by residents of a country, regardless of their geographical location

• Real: ...in terms of physical quantities/taking into account effects of price change
• Nominal: ...at current prices/not taking into account effects of price change
• GNP = GDP + NPIA
• GDP at market price - indirect taxes + subsidies = GDP at factor cost (can be used for GNP too, then follow downwards)
  
  • Market price: retail value
  • Factor cost: what firms receive for their goods and services
• GDP at factor cost - depreciation = NDP (net domestic product)
  • Depreciation: Fall in value of physical assets due to wear and tear, obsolescence

Circular flow of income (in a 2-sector economy)

• Firms: basic producers of finished products, buyers of FOP
• Households: basic consumers of finished products, owners of FOP
• Firms need to produce goods, hence employ FOP belonging to households → households earn factor income in terms of WRIP, income flows from firms to households
• Households purchase finished goods from firms → income flows from households to producers
• Output = expenditure = income; 3 ways of calculating NI:
  
  • Output method: totals value of goods and services produced by all productive units in an economy
  • Expenditure method: totals expenditures by private and government sectors
  • Income method: totals income earned by individuals and organisations

Uses of NI

• Determine SOL (SOL: quality of life, encompasses material and non-material aspects)
• Determine economic growth
• Measure rate and direction of economic growth (growing/stagnating/declining, which sectors)
• Determine factor income distribution across wage earners and property owners
• Help policymakers formulate measures to arrest problems/promote economic growth
• Help firms with their research and marketing e.g. disposable income distribution
• Aid international economic planning e.g. amount of donations by donor country expected