Académique Documents
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3&4
National Income
Determination
Session plan
Need
Nominal GDP
- 2000
Nominal GDP
- 2004
Wheat
Pens
10 at Rs. 5
30 at Rs. 20
30 at Rs. 5
150
1400
350
Real GDP
2004
Class activity:
Calculate
Deflator
Year
Price of
Hot Dogs
($)
Qty of
Hot
Dogs
Price of
Hamburger
($)
Qty of
Hamburger
s
2010
$1
100
$2
50
2011
$2
150
$3
100
2012
$3
200
$4
150
Answer
Nominal
GDP
Real GDP
GDP
Deflator
2010
2011
2012
2010
2011
2012
2010
($200/$200)*100 = 100
2011
($600/$350)*100 = 171
2012
(&1,200/$500)*100 = 240
Inc or Y = C + S + T
C + I + G = C + S + T
= I + G = S + T
= G T = S I
It means if G is greater than T; ie if there is a
deficit budget, the Govt will have to borrow from
financial market. For this purpose Pvt I has to be
less than Pvt S. Thus govt borrowings reduce I in
the economy Crowding out
If G > T; then I < S Govt borrowings reduce
private investments.
Y = C + I + G + Xn; where Xn = X M
Y=C+I+G+X=C+S+T+M
Or I + G + X = S + T + M (ignoring C)
Or I + G + (X-M) = S + T
S+T+M=I+G+X
S + (T G) I = X M
Or S I = (G T) + (X M)
Measurement of NY
1.
Measurement of NY
Income
method:
Net value added by factor cost:
= sum of compensation of
employees + rent and royalties +
Interest + profits (operating
surplus) + mixed incomes
NDPFC + NFIA = NNPFC
Measurement of NY
Final
expenditure method:
GDPMP = Pvt Consumption expen +
Govt final econ exp + Gross domestic
capital expen + Net exports
NDPMP = GDPMP Consumption of
fixed capital
NDPFC = NDPMP + Subsidies Indirect
taxes
NNPFC = NDPFC + NFIA
500
Compensation of employees
1850
Depreciation
100
1100
2600
Rent
400
Dividend
200
Interest
500
Net exports
-100
Undistributed profits
900
-50
Net
indirect
subsidy)
taxes
(Indirect
taxes
250
Answer
Income
method:
= Compensation to employees + rent + interest
+ Un Profits + Dividend + NFI from abroad +
Depreciation
= 1850 + 400 + 500 + 900 + 200 50 +100 =
3900 crs
Expenditure method:
= Pvt cons expen + Govt expen + Net domestic
capital formation + Net exports + Net Factor
income from abroad net indirect taxes +
depreciation
= 2600 + 1100 + 500 -100 50 250 +100 =
3900 crs
Problems in GDP
Measurement
Value of non-monetary transaction - Value of some
Problems in measurement of NI
Treatment
But
of
well-being.
Robert
leisure
time
non-market
child care
a parent provides his or her child
at home
an
equitable distribution of
income
Many
Japan
Mexico
U.S.
Germany
Brazil
Pakistan
India
Russia
Bangladesh
Nigeria
27
Russia
Adult Literacy
(% of population)
Mexico
Germany
Japan
U.S.
Brazil
Indonesia
Nigeria
India
Pakistan
Bangladesh
28
Internet Usage
(% of population)
Japan
Pakistan
Nigeria
U.S.
Germany
Indonesia
Brazil
Mexico
Russia
China
India
Bangladesh
29
Class activity
GDP
Class activity
One
Concepts learnt
Components
of GDP
Measurement of NY
National income identities
Problems in measurement of NY
Limitations of GDP as a
measurement of welfare