Page 36 - DECO201_MACRO_ECONOMICS_ENGLISH

Unit 2: National Income

In a 4 sector model, we have, Notes
Y = C + I + G + (X-M)
Where, Y = Income or Output
C = Household consumption expenditure

I = Investment expenditure
G = Government expenditure
X-M = Exports minus Imports

Self Assessment

Fill in the blanks:

16. The two sectors in the 'circular flow of income in two sector model' are represented by
................................ and ................................
17. In a ................................ sector model, an economy moves from being a closed economy to
an open economy.
18. Imports and exports happen in ................................ economy.

2.6 Summary

National income can be defined as the aggregate of money value of the annual flow of
final goods and services in the national economy during a given period.
GNI comprises the total value produced within a country, together with its income received
from other countries less similar payments made to other countries.
GNP at market price/factor cost = NNP at market price/factor + depreciation
GNP at market price/factor cost = GDP at market price/factor cost + Net factor income
from abroad
NNP at market price/factor cost = NDP at market price/factor cost + Net factor income
from abroad

Net factor income from abroad = Factor income received from abroad - Factor income
paid abroad.
GNP = GNP at factor costs + indirect taxes-Subsidies.
MP
NNP = NNP + indirect taxes-Subsidies.
MP FC
GDP = GNP - Net factor income from abroad
GNP = C + Ig + G + (X - M)
GNP = GNP - Indirect taxes + Subsidies
FC MP
GNP = NNP + Depreciation
National Income = GNP - Depreciation - Indirect taxes + Subsidies
Personal income is calculated by subtracting from national income those types of incomes
which are earned but not received and adding those types which are received but not
currently earned.

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