5 Competencies in PORTMAN College

1. Personal/Self Motivation Skill

2. Communication & Presentation
Skill
3. Problem Solving & Decision Making
4. Leadership Skills
5. Team Working Skills

THE GOODS MARKET

NATIONAL INCOME (NI)

The flow of goods and services by a
nation over a period of time, usually a year.
The concept of NI:
- Gross Domestic Product
- Gross National Product
- Market Price and Factor Cost
- Net National Product (NNP)
- etc..

Gross Domestic Product

(GDP)
Definition : TOTAL MONEY VALUE of the
all FINAL GOODS and SERVICES
PRODUCED in a country at a given time
period.
The output produced by foreign workers in
Malaysia such as Indonesians and Nepalese
will be included in the GDP.

Methods of Measuring
National Income (NI)
There are three methods to measure
national income. Why?
Because NI can be viewed from three
dimensions which are: 1)total output, 2)total
income, 3)total expenditure.
INCOME = PRODUCT = EXPENDITURE
The concept above gives the same result
when we measure National Income.

Methods to Measure NI, cont..

1)Income Approach
2)Product Approach
3)Expenditure Approach

Expenditure Approach
Under this method, national income is calculated
by adding all the EXPENDITURE on Goods and
Services in a year.
National expenditure comes from FOUR (4)
economic sectors, which are:1. Personal Consumption (C)
2. Investment (I)
3. Government Spending (G)
4. Net Exports (X M)

Expenditure Approach, cont..

Personal Consumption
- It includes the purchase of goods and
services produced by firms, individuals or
households.
- Personal consumption only includes
spending that is incurred by individuals or
households for their own personal use.
- Examples : shoes, clothes, obtain legal
advice, seek medical service

Expenditure Approach, cont..

Investment
- The purchase of capital goods by firms
to use in production and in changes
in the firms inventories.
- Inventories? refer to the stocks of
raw materials, semi-finished products
and unsold final products that are
retained by the firms over a year.

Expenditure Approach, cont..

Government Spending
- The expenditures made by federal, state and local
governments for final goods and services.
- The purchase of government goods and services
includes the cost to provide national defense,
construction of new buildings such as schools and hospitals
and payment of salaries to public servants.
- Transfer payment is NOT INCLUDED in government
expenditure because it does not represent the
purchase of goods and services, rather the transfer of
income from government

Expenditure Approach, cont..

Net Exports
- Difference between what a country
EARNS by exporting goods and
services to other countries (X) and what it
PAYS for goods and services that are
imported from other countries (M).
- Simply say, Net Exports is the
difference between the value of
exports
MINUS the value of imports.

Expenditure Approach, cont..

Under expenditure approach, Gross
Domestic Product (GDP) is calculated by
adding up all the four items of expenditure
as follow:
GDP at market price = C + I + G + (X M)

GDP, cont..
How to measure GDP? through Market Price
and also at Factor Cost.
Market Price?
Refers to current price in the market or the actual
price paid by the consumers which include (plus)
indirect taxes and excludes (minus) subsidies
given to producers does not reflect real price
Factor Cost?
Refers to real prices that is earned by
producers or sellers.

GDP, cont..
What is Indirect Taxes and Subsidies?
Indirect Taxes certain amount being
levied on goods such as excise duty, import
duty, sales tax -- discourage the producers
to produce more goods and services
Subsidies Incentive given by the
government to producers to encourage
them producing more goods and services.

GDP, cont..
*GDP at market price = C + I + G + (X M)

GDP at factor cost = GDP at market price

indirect taxes + subsidies

Gross National Product (GNP)

The total amount of income earned by
nationals of the country regardless of where they
are.
Simply say, GNP can be defined as the SUM of
gross domestic product (GDP) and the net factor
INCOME FROM ABROAD (income received from
abroad minus the income paid abroad)
GNP = GDP + (income received from abroad the
income paid abroad)

Growth Rate
The economic growth rate of a country
can be measured as GDP or GNP based on
real income / real GNP
Growth rate; the percentage (%) change
in the quantity of goods and services
produced from one year to another.

Growth Rate Formula

Growth Rate (g) =
Real GNP this year Real GNP last year X 100%
Real GNP last year
Real GNP =
Base Year Price Index
X Nominal GNP
Current Year Price Index
*Base year price index is equal to 100*

Lets test your understanding

1. If real GDP for year 2003 is RM232, 359
million and RM248,954 million for year 2004.
The growth rate from year 2003 to 2004 is?
2. If current price index is 160 while base
year price index is 100 and the nominal GNP
is RM10,000 million, then the real GNP is?

DETERMINATION OF
EQUILIBRIUM OUTPUT

How to determine national

income equlibrium?
Aggregate Demand Aggregate Supply
Approach
Leakage Injection Approach

Aggregate Demand (AD)

Aggregate Supply (AS) Approach

 AD or aggregate expenditure is the total demand for

goods and services in the economy
AS or aggregate output is the total quantity of goods and
services produced in economy at any given time period.

Overall Price Index

AS
E
P*

Y*

AD
Aggregate Output

Equilibrium occurs when AD equals to AS (AD = AS)

Leakage - Injection Approach

Leakage is a withdrawal from the incomeexpenditure stream. It includes savings,
taxes and imports.
Injection is additional spending to the
income-expenditure stream. It includes
investment, government expenditure and
exports.
Equilibrium occurs when leakages are
equal to injections.

Determinants of Equilibrium
Equilibrium can be determined in :
A two-sector economy (households and firms)
A three-sector economy (households, firms
and government)
A four-sector economy (households, firms,
government and foreign sector)

Equilibrium in Four-sector economy

Equilibrium in four-sector economy is also
considered an open economy whereas in a
three-sector economy is a closed economy.
Using AD AS Approach
In 4-sector economy, AD is the SUM of
household consumption (C), investment from
the firm (I), government expenditure (G) and
exports (X) minus imports (M).
AD = C + I + G + (X-M)

Cont..
Aggregate Supply is the aggregate output
(Y).
So,
AS = Y
AD = C + I + G + (X-M)

Equilibrium is achieved when

AS = AD
Y
= C + I + G + (X-M)

Cont..
AD

Y = AS = AD
C + I + G + (X-M)

45

National Income, Y

Equilibrium level occurs when AD or Aggregate Expenditure

intersects the 45 degree line.

 Using Leakage Injection Approach

In 4-economy sector economy, savings,
taxes and imports are leakages while
investment, government expenditure and
exports are injections into the spending
stream.
Equilibrium is achieved when leakages (S,
T, M) equal to injections (I, G, X).

Leakage / Injection

S+T+M

I+G+X

National Income
-L

Y*

Equilibrium level occurs when I + G + X intersects S + T + M at

Y*

Lets check your understanding

Given the following information
C = 200 + 0.75Yd (Yd is disposable income)
I = 100
G = 50
T = 100
X = 100
M = 50
Find the equilibrium income using AS AD approach and
Leakage Injection Approach.

THANK YOU