National income – definition
The commonest indicator of a country’s national income is its Gross Domestic Product (GDP). There are three theoretical ways that GDP can be estimated:
- GDP(O) which measures the sum of all output of goods and services produced – referred to as the ‘output approach‘.
- GDP(I) which measures the total income generated by companies, employees and the self-employed from the production of goods and services – referred to as the ‘income approach‘.
- GDP(E) which measures the total expenditures on all finished goods and services produced within the economy – referred to as the ‘expenditure approach‘.
All these measures are ‘gross’ (rather than net) because they do not remove expenditure relating to the replacement of capital – called capital consumption.
‘Domestic’ means it measures the total value of final goods and services produced within a country’s borders in a year, whereas ‘National’ – as in Gross National Product – is the value of final goods and services produced in a year by domestically owned factors of production. Hence this measure includes ‘income’ earned by factor owners from assets held abroad, less income going abroad to overseas owners of assets in the country.
The estimates are ‘gross’ because the value of the capital assets which depreciate – the ‘capital consumption’ – during the productive process has not been subtracted.
The laissez-faire economic theory centers on the restriction of government intervention in the economy. According to laissez-faire economics, the economy is at its strongest when the government protects individuals' rights but otherwise doesn't intervene. The ...
What Is Adverse Selection? Adverse selection is a term that describes the presence of unequal information between buyers and sellers, distorting the market and creating conditions that can lead to an economic collapse. It develops ...
Explaining The K-Shaped Economic Recovery from Covid-19 A K-shaped recovery exists post-recession where various segments of the economy recover at their own rates or levels, as opposed to a uniform recovery where each industry takes the same ...
Does Public Choice Theory Affect Economic Output? Both on paper and in real life, there is a solid relationship between economics, public choice, and politics. The economy is one of the major political arenas after all. ...
Largest Retail Bankruptcies Caused By 2020 Pandemic As we know at this point, the COVID-19 pandemic has thrown major companies in the US and the world over into complete havoc. Many have filed for bankruptcy, with an ...
Identifying Speculative Bubbles and Its Effect on Markets Speculation plays an interesting role in economics and one that drastically affects markets. If you ever see "speculation" in this context, be sure to pay attention. It is ...