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Macro Chapter 2 (Part 2)

This document defines national income and outlines several methods for measuring it, including the product, income, and expenditure methods. It provides examples of calculating national income using the final product and value added methods under the product approach. The document also explains how national income is composed of factors' incomes like wages, interest, rent, and profits. It gives an example of calculating national income using both the income and expenditure methods.

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56 views17 pages

Macro Chapter 2 (Part 2)

This document defines national income and outlines several methods for measuring it, including the product, income, and expenditure methods. It provides examples of calculating national income using the final product and value added methods under the product approach. The document also explains how national income is composed of factors' incomes like wages, interest, rent, and profits. It gives an example of calculating national income using both the income and expenditure methods.

Uploaded by

zeyad Gad
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Dr.

Shereen Ahmed Abdallah


( lecture no.3)
 Main Points:
 1- Definition of national income.
 2-Importance of national income.
 3- Circular flow model of income.
 4- Methods of measuring national income.
 5-Problems of measuring national income.
 6- Some concepts of national income and national
product.
 There are three methods to measure national
income:

Product Income Expenditure


method method method
 This method can be calculated by 2 ways:

Final Value
product added
method method
Final product method

 National income is calculated using this
method according to the following equation:
 National income=
(Q of goods*its prices)+(Q of services*its prices) 
Example:
total quantity price product

? 100 2 clothes

? 200 4 cars

? 600 1 bread

‫؟‬ National income


 Final product method
Sol of Example:
total quantity price product

clothes
200 100 2
cars
800 200 4
bread
600 600 1

1600 National income


 V.Imp note:
 In order not to duplicate calculating of the
value of goods and services, we should use
“value added method”
 value added method

 Value added= value of the product-value of


intermediate product
 Value added method
 Example 1:calculate national income
according to the following data
Value Value of Value of Product
intermediate
added product
product

‫؟‬ zero 20 wheat


‫؟‬ ‫؟‬ 25 flour
‫؟‬ ‫؟‬ 35 bread
‫؟‬ National income using value
added method
 Value added method
 Sol of Example 1:
Value Value of Value of Product
intermediate
added product
product
20 zero 20 wheat
5 20 25 flour
10 25 35 bread
35 National income using value added
method
 Example 2:if national income for country x is 1670
million $. Complete the following data to calculate
the value added for each project.
Value added Value of Value of product Product
intermediate
product
600 ‫؟‬ 600 Apple farm
550 200 ‫؟‬ Cheese factory

‫؟‬ ‫؟‬ 500 Cars factory

‫؟‬ 100 270 Ceramic factory

1670 National income using value added method


 Example 2:
Value added Value of Value of product Product
intermediate
product
600 zero 600 Apple farm

550 200 750 Cheese factory

350 150 500 Cars factory

170 100 270 Ceramic factory

1670 National income using value added method


National income=
factors’ of
production
income

wages interest rent profits


 Wage: it is the compensation given to labor due
to his participation in the production process.
 Rent: it is the compensation given to the owner
of land due to the participation of land in the
production process.
 Interest: it is the compensation given to owner of
capital due to its participation in the production
process.
 Profit: it is the compensation given to the
entrepreneur due to his participation in the
production process.
National income =
National
consumption

net exports Firms’ Governments’ Housholds’


consumption consumption consumption
National income=
national
expenditure

Personal Government Net export


investment
consumption purchases
 Example 1: given the following data, calculate
national income using 2 methods:.
 Total exports 20 millions$
 Total wages 10 millions$
 Total profits 4 millions$
 Total Investments 10 millions$
 Total interest paid to the owners of capital 15
millions$
 Total imports 15 millions$
 Total personal consumption 5 millions$
 Total government purchases 20 millions$
 Total rent 2 millions$
 Example 1:
 National income using income method= rent
wage+ interest+ profit
 National income using income
method=2+10+15+4= 31 millions$

 National income using expenditure method= personal


consumption+ investment+ government purchases+ net exports
 National income using expenditure method= personal
consumption+ investment+ government purchases+ (exports-
imports)
 National income using expenditure method=5+10+20+(20-
15)=40m$

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