Economics For Managers
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Chapter 12 : National Income
Circular Flow Of Income
Circular Flow of Income in the Two Sector Model
without Savings
Circular Flow of Income in the Two Sector Model with Savings
Circular Flow of Income in a Three Sector Economy
Circular Flow of Income in a Four Sector Economy
Factors Affecting The Size Of A Nation's Income
Approaches To Measure National Income
Product Approach
Income Approach
Expenditure Approach
Measures Of Aggregate Income
Gross and Net Concepts
Domestic and National Concepts
Market Prices and Factor Cost
Aggregate Income Measures
Nominal and Real GDP
The GDP Deflator
Personal Income
Disposable Income
Difficulties In Measuring National Income
The Uses Of National Income Statistics
Chapter Summary
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Circular flow of income takes place between business firms,
households and the government. To produce goods and services, households provide
their services and in return they get wages. Similarly, when households buy
goods and services, they pay for them and the producers receive the money as
their income. So, there is circular flow of income. This is the circular flow of
income in a two sector economy.
However, this circular flow can also be shown to
take place in a three sector or four sector model of the economy. National
income is the total income earned by current factors of production. The
understanding of national income helps in measuring the performance of an
economy. There are three approaches to measure national income: product, income
and expenditure approaches. |
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Apart from national income, there are other
aggregate measures which are also used to measure the performance of
an economy. On the basis of gross and net, domestic and
national concepts, and market price and factor costs, different
aggregates can be calculated. They are Gross Domestic Product at
market price and factor costs, Gross National Product at market
price and factor costs, personal income and disposable income, etc.
There are some difficulties in measuring national income.
They are: imputed value, the underground economy, 'side effects' and
economic 'bads,' leisure and human costs and double counting.
National income statistics can be used as: an instrument of economic
planning and review, as means of indicating changes in a country's
standard of living, for comparing the economic performance of
different countries, to indicate changes in the economic growth of a
country.
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