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The level of overall economic activity - Coggle Diagram
The level of overall economic activity
What is Gross
National Income (GNI)?
GNI is the total income by the country's FOP regardless of where the assets is located
Care about who owns the assets, not where it is
GNI = GDP + net property income from abroad
Difference between
nominal and real GDP/GNI
Sometimes GDP/GNI increase, but no increase in real output. This is because of inflation. Hence, we need "GDP/GNI deflator" to get real value of G&S produced
Real GDP/GNI = Nominal GDP/GNI x price deflator
e.g. If inflation is 4%, then price deflator is (100/104)
GDP/GNI per capita
Can be used to make judgement about the raising of living standard
GDP/GNI per capita = GDP/GNI divided by population size
Why national income
statistics is gathered
Can be used to measure economic growth
Government use the statistics to develop suitable policies
Economist can forecast the future using the statistics
Businesses use it to make forecast about demand
Can be used to compare between different countries
Limitations of national income statistics
Because statistician analyze large amount of data inaccuracies is inevitable. Accuracy tend to increase after a time lag because more data is available.
DIY works, subsistent farms, illegal activities, legal activities that are unrecorded (tax evasion etc.), all does not count towards the national income
Does not include external costs such as environmental effects and pollutions
National income does not reflects higher standard of living as activities such as volunteer work does not count towards national income, and people may not even be able to enjoy the higher wages (because of less holidays, etc.)
Goods such as defense goods increase GDP, but people do not get to enjoy it.
Business cycle
Rising GDP @ expansion (recovery phase)
increase in AD, unemployment rate falls, inflation happens, until it reaches 'boom' (potential output)
Falling GDP @ contraction (recession phase)
recession is defined as 2 consecutive quarters of falling GDP
decrease in AD, unemployment rate rise, low rate of inflation, can also become deflation, until it reaches 'trough'
repeat recovery phase
Other measure of
economic well-being
OECD Better Life Index
Measure well-being in terms of material living conditions (housing, income jobs) and quality of life (community, education, environment, governance, health, life satisfaction, safety, and work-life balance)
Happiness Index
Variables considered are GDP per capita, social support, healthy life expectancy, freedom to make choices, generosity, and perception of corruption.
All of these index is composite index. They take multiple measure of well-being indicators and put them together
Happy Planet Index (HPI)
Measures sustainable well-being, taking into account sustainability
Indicators used are Wellbeing, Life expectancy, Inequality of outcomes. and Ecological footprint.
How is national
income measured?
Gross Domestic Product (GDP) is the total value of all spending in the economy
since all method measure the same thing, the value should be the same. Hence, national output = national income = national expenditure
expenditure method
measure value of all spending on G&S by the government (G), consumer (C), firm investment (I), and net export (X-M)
income method
Measure the value of all incomes earned by economic agents in the economy
output method
Measure the value of all G&S produced by firms in the economy
