Page 37 - DECO201_MACRO_ECONOMICS_ENGLISH

Macro Economics

Notes Disposable income is the total income that actually remains with individuals to dispose
off as they wish. It differs from personal income by the amount of direct taxes paid by
individuals.
Value added can be defined as the difference between the value of output produced by that
firm and the total expenditure incurred by it on the materials and intermediate products
purchased from other business firms.
There are three approaches to the calculation of national income- product approach, income
approach and expenditure approach.
In Product method, two approaches are adopted- final product approach and value added
approach. In Final product approach, sum total of market value of all final goods and
services produced by all productive units in the domestic economy in an accounting year
is estimated by multiplying the gross product with market prices.

In value added method net value added at factor cost by all the producing units during an
accounting year within the domestic territory is summed up.
As per the income method, National Income = compensation of employees + operating
surplus.
As per the expenditure method, GDP= C + I + G + (X - M).
Circular flow of income model shows the flow of income between the producers and the
households who buy their goods or services.

2.7 Keywords

Disposable income: It is the total income that actually remains with individuals to dispose off as
they wish.
Gross Domestic Product: It is a measure of a country's overall economic output.
Gross National Income: The total value produced within a country, together with its income
received from other countries less similar payments made to other countries.
Gross National Product: It is the value of all final goods and services produced by domestically
owned factors of production within a given period.
National Income: Aggregate of money value of the annual flow of final goods and services in
the economy during a given period.

Value added: Difference between the value of output produced by a firm and the total expenditure
incurred by it on the materials and intermediate products purchased from other business firms.

2.8 Review Questions

1. Given the following data about the economy:

Consumption 7000
Investment 5000
Proprietor's income 2500
Corporate income taxes 2150
Govt expenditure 3000

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