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MGEA06H3 (176)
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Lecture

# Week2 Lecture

19 Pages
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Department
Economics for Management Studies
Course Code
MGEA06H3
Professor
Iris Au

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1
ECMA06 â€“ National Income
Measurement of National Income â€“ GDP
Outline
â€¢Why we want to measure output?
â€¢The 3 approaches to measure national income:
â‡’The expenditure approach.
â‡’The income approach.
â€¢Other issues related to national income:
â‡’Gross national income vs. net national income.
â‡’GDP vs. GNP.
â‡’Nominal GDP vs. Real GDP.
â‡’GDP deflator.
www.notesolution.com
2
Why We Want to Measure Output?
â€¢A measure of the countryâ€™s economic activity â€“ what kind
of goods and services we produced? What are the levels of
production?
â€¢A simple way to measure our standard of living and
compare it to other countries.
How To Measure Aggregate Output
â€¢We call the aggregate output as Gross Domestic Product
(GDP) â€“ the total value of goods and services produced in
the economy during a given period.
â€¢There are 3 ways to measure GDP:
1) The expenditure approach Use by the government
2) The income approach
www.notesolution.com
3
ECMA06 â€“ National Income
The Expenditure Approach
â€¢The expenditure approach, sometime called gross domestic
expenditure (GDE), adds up the expenditure needed to
purchase the final output produced during a given period.
â€¢Total expenditure is the sum of 4 major broad categories:
1) Consumption (C) â€“ spending by households on goods and
services.
2) Investment (I) â€“ spending on goods that are not for present
consumption. There are 3 types of investment:
i) Business fixed investment â€“ the purchases of
capital equipments, machinery and production plants.
ii) Residential investment â€“ the building of new houses.
iii) Inventory investment â€“ the change in the quantity of
goods that firms hold in storage, including materials
and supplies, work in process, and finished goods.
3) Government spending (G) â€“ spending on goods and
services by different levels of government, exclusive of
government transfer payment.
www.notesolution.com

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Description
1 ECMA06 National Income Measurement of National Income GDP Outline Why we want to measure output? The 3 approaches to measure national income: The expenditure approach. The income approach. The value-added approach. Other issues related to national income: Gross national income vs. net national income. GDP vs. GNP. Nominal GDP vs. Real GDP. GDP deflator. www.notesolution.com2 Why We Want to Measure Output? A measure of the countrys economic activity what kind of goods and services we produced? What are the levels of production? A simple way to measure our standard of living and compare it to other countries. How To Measure Aggregate Output We call the aggregate output as Gross Domestic Product (GDP) the total value of goods and services produced in the economy during a given period. There are 3 ways to measure GDP: 1) The expenditure approach Use by the government 2) The income approach 3) The value added approach www.notesolution.com
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