National income

National income

National income refers to the monetary value of production of final goods and services produced in the economy during any period of time.

Calculating basic domestic product

GDP can be calculated three method that the same results because value of the same thing. All three methods are in stream flow cycle of the product revenue and expenditure. All three variables are the 

same thing (identities) can be show the equation below.

1. Product Approach

Will use the value added that occurs in each step for production of goods and services in the calculation to avoid double counting in the value of a product that will make the calculated value is higher than reality. Calculated by using the Value added steps in distribution for goods and services every step to find Value added production that occurs in each step. Then find totals the value added each step for production that the value is equal to the final product value

The value added = the value of products sold - the value of products purchased in the production.

2. Expenditure Approach

The expenditure measure of the economy to pay for products produced in the final round that year. Expense of the economy such as expenditure in consumption, expenditure in the investment expenditure of government and net exports totals expenditures are 
called National expenditure.

GDP = C + Ig + G + (X – M)

3. Income Approach is a measure income derived from the production of GDP in this year categorized into two parts. Part 1 is the compensation of production factors involved in production or cost of inputs. Parts 2 are not a compensation of production factors, but are deployed in the selling prices in the market such as indirect taxes.

GDP = W + R + I + P + PI + GR + Ti + D

W = Compensation.
           R = Revenue in the rent.
          I = net interest income.
          P = profits of corporations.
          PI = income from non-corporate corporate.
          GR = government revenue from property and management.
          Ti = indirect taxes less subsidies.
          D = depreciation.

GDP measured in revenue consists of revenue is compensation of production factors (National income) and non-compensation of factors of production such as indirect taxes minus subsidies, and depreciation of fixed assets.

National income has 6 types

1.              Gross Domestic Product : GDP

a.     Is a monetary measure that is calculated in dollar terms rather than in terms of physical units of output.

b.    To avoid double counting , include only final goods and services ( goods and services that will not be processed further during the current year)

c.     Nonproduction transactions are not included in GDP; purely financial transaction and secondhand sales are therefore excluded.

•     Value added is the difference between the value of goods as they leave a stage of production and the cost of the goods as they entered that stage. In calculating GDP, we can either sum up the value added at each stage of production, or we can take the value of final sales.

2. Gross National Product: GNP

Is the total market value of final goods and services produced within a given period of time by factors of production owned by a country’s citizens, regardless of where output is produced. Include output produced by Thai citizens working in Thailand and Thai citizens working abroad. Exclude output produced by foreigners working in Thailand.

GNP = GDP + Net factor income from abroad.

                  3. Net Nation Product: NNP

                  The monetary value of finished goods and services produced by a country's citizens, whether overseas or resident, in the time period being measured (i.e., the gross national product, or GNP) minus the amount of GNP required to purchase new goods to maintain existing stock (i.e., depreciation).

NNP = GNP – depreciation

                  4. Net National Product at factor cost: NNP at factor cost

Is equal to the sum total factor incomes received by the factor of production during the year it is equal to the sum rent, wages .interest and profit in a given year. The sum total of incomes of the factors of production is known as national income or net national product at factor cost.

NNPfc = NNPmp – indirect taxes + subsidies

                  5. Personal Income

Is the total income received whether it is earned or unearned by the households of the economy before the payment of personal taxes. It is found by adding transfer payment to and subtracting social security contributions, corporate income taxes, and undistributed corporate profits from NI

PI = NI – corporate income taxes- undistributed corporate profit - social security contributions + transfer payment

                  6. Disposable Personal Income

Is the total income available to households after the payment of personal taxes. It is equal to PI less personal taxes and also equal to personal consumption expenditures plus personal saving.

DI = PI – personal taxes

Nominal GDP and real GDP

Nominal GDP is GDP evaluated at current market prices. Therefore, nominal GDP will include all of the changes in market prices that have occurred during the current year due to inflation or deflation. Inflation is defined as a rise in the overall price level, and deflation is defined as a fall in the overall price level. In order to abstract from changes in the overall price level, another measure of GDP called real GDP is often used. Real GDP is GDP evaluated at the market prices of some base year.

GDP deflator Using the statistics on real GDP and nominal GDP, one can calculate an implicit index of the price level for the year. This index is called the GDP deflator and is given by the formula

The nominal GNP is the value of all the production valued at this year's prices. Real GNP is valued at prices of a base year

Real GNP it means that the GNP has been adjusted for the effects of inflation and it represents the actual gross national products after accounting for the rising prices

GNP deflator is the ratio of a country's nominal GNP to its real GNP, expressed as a percentage. It measures the percentage increase or decrease in the price of products and services (inflation) by comparing the current GNP to a base period.

GDP has shortcoming as a measure of the total output and economic well-being.

a.     It excludes the value of final goods and services not bought and sold in the market of the economy.

b.    It excludes the amount of leisure the citizens of the economy are able to have.

c.     It does not record the improvements in the quality of products that occur over the year.

d.    It does not measure the market value of the final goods and services produced in the underground sector of the economy.

e.     It does not record the pollution costs to the environment of producing final goods and services.

f.       It does not measure changes in the composition and the distribution of the domestic output.

g.     It does not measure noneconomic sources of well being.

Per capital

Average per capita value of products a person or an average workers person are in basic products (per capital GDP) Average basic national product (per capital GNP). Average product value can be calculated by dividing the desired value for the number of people in the country in that year.

Advantage of the product number

1. A macroeconomic indicators of activity such as economic activities in the production. The economists and business executives in the general public will know that in that country can produce the product.

2. Represents changes in economic activity in the short term that represents changes in production quantity of expenditure and revenue fluctuation.

3. Compare the economy of the country that may be used to compare the period difference or compare international economy.

4. Is goal of economic development planning in a period of time the plan will set targets and objectives in the economic and social development. Government must try to intensive the economy in the direction of achieving the goals.

Number of products measuring economic welfare Is Level of well-being of the people or the people having a better life. Measuring economic welfare to the measurement of such as quantity and quality of the products people consume education. It has been adjusted to indicate the number GNP called measure of economic welfare. That is different from the GNP number.

1. Costs about with the necessary some have to pay the country. Such as maintaining peace in the country and the national defense will not be included in measuring GNP.

2. Evaluate costs or expenses in removing the economic environment such as air pollution, waste water, and noise and to subtract from the value of GNP.

3. The valuation of the goods that are not traded on market. But is products and services are benefits such as goods and services produced in the household and leisure included in the GNP.