MEASURING ECONOMIC
ACTIVITY
Date: 13th January
2019
Lecture: 3rd

Topic layout
 Introduction and Definition of National Income
 Measuring National Income
 Gross Domestic Product (GDP)
 Methods of measuring GDP
 Product method
 Income Method
 Expenditure Method
 Real GDP and Nominal GDP

Component of Macroeconomic
 Household (factor of production like LLCE)
 Firms (buy factor of production and produce goods)
 Government (collect taxes and spend on public)
 International Sector (involving imports and exports)

National Income
 National income refer to the total value of goods and services produced by
a country / economy within a year.
 “The net output of commodities and services flowing during the year from
the country’s productive system in the hands of the ultimate consumers.”

Measurement of National Income
 Gross Domestic Product (GDP)
The money value of all final goods and
services produced within the territory of a country for a specific time duration.
Methods of
calculating GDP
Product Method
Income
Method
Expenditure
Method

Method of Measuring GDP
Product
Methods of GDP
Primary Sector:
Mining, Agriculture, Forestry and Fishing
Secondary Sector:
Manufacturing and Construction
Tertiary Sector:
Electricity, gas, water, wholesale and retail, finance, insurance,
real state, transport, storage, communication, government
services and others.

Method of Measuring GDP
Income
Methods of GDP
The various types of income paid to firms and household
against the services provided.
• Wages and Salaries
• Net interest
• Rental income
• Profit
• Dividend
GDP = wages + salaries + rent + profit + interest + dividend
Y = W + S + R + P + I + D

Method of Measuring National Income
Expenditure
Methods of GDP
All the expenditures on goods and services in a specific period
of time are added.
• Consumption
• Investment
• Governmental Expenditures
• Net Exports (Exports – Imports)
GDP = C + I + G + (X - M)

Real and Nominal GDP
Refer to
economy’s total
value of production
of goods and
services on the
basis of constant
prices
Real
GDP
Refer to
economy’s total
value of production
of goods and
services on the
basis of current /
market prices
Nominal
GDP

Measurement of National Income
 Gross National Product (GNP)
The money value of all final goods and
services produced by the national / Residence of an economy during a specific
time duration.
GNP= C+I+G+X+Z
Z = Net income earned by the domestic residence from foreign (minus)
net income earned by foreign residence from domestic

Measurement of National Income
 Net National Product (NNP)
The market value of the net output of
final goods and services produced by a nation during a given period of time.
Also called national income at market prices.
NNP= C + I + G + X + Z – Depreciation
NNP = GNP - Depreciation

Measurement of National Income
 Net National Product (NNP)
The market value of the net output of
final goods and services produced by a nation during a given period of time.
Also called national income at market prices.
NNP= C + I + G + X + Z – Depreciation
NNP = GNP - Depreciation

Measurement of National Income
 Personal Income (PI)
The income received by households and individual of
an economy during a specific period.
PI= National Income + Transfer Payment – Taxes
 Disposable Personal Income (DPI)
The total amount of money available for
a person or a population to spend or save.
DPI= Personal Income – Personal income Taxes

Measurement of National Income
 Per Capita Income (PCI)
The average income earned by each person in a given
area such as, a region, a city, a country or an economy in a year.
Per Capita Income = Gross Domestic Product / Population

Circular Flow of National Income
Household
Firm Government
Supply of labor, land, capital and entrepreneur
Produce and sell goods and services to households
Receive wages, rent and profit from the firms
Payment of Goods and services to firms
Collect Tax Collect Tax
Payment for Goods
Wages, Transfer
Pay