Economics-For Managers


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Economics For Managers, Management Textbook, Workbook

Macroeconomics : National Income : Chapter 12

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.

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.

Chapter 12 : Overview

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