Income:
It is the consumption and savings opportunity earned by an entity within a specific time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests’ payments, rents, and other forms of earnings received... in a given period of time.
Income Determination:
This model was presented by Keynes. According to Keynes, there can be different sources of national income, such as government, foreign trade, individuals, businesses and trusts. For this he has divided different types of income into four categories. Business sector, household sector, government sector and foreign sector. Increase in income:
Income per capita has been expanding
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Some economists says that it is compulsion to have inequality but excessive inequality is very dangerous for economy.
The equilibrium condition of national income determination can be expressed as follows:
Aggregate demand = Aggregate supply
Income-Expenditure Approach:
Income-expenditure approach refers to the method in which the aggregate demand and aggregate supply schedules are used for the determination of national income.
In this method the equilibrium state is achieved as follows:-
C+I=C+S
Income Determination Multiplier:
The concept of multiplier can be understood by determining the relationship between change in national income (ΔY) and change in investment (ΔI).
Derivation:
Lets assume 2 points Y1 AND Y2
Y1 = C + I
The consumption is equal to:
C = a + bY
Y1 = a + bY1 + I
Y1 = 1/1-b (a + I)
Y2 = C + I + ΔI
Y2 = a + bY2 + I +
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Government buys of merchandise and enterprises.
Above are methods through which we measure national income. If we use any method we will obtain same result no matter which method we use, we will add value of finals goods and services.
LIMITATIONS OF INCOME DETERMINATION MODEL:
Following are some limitations of income determination model. a number of the constraints of multiplier that need to be taken into consideration whilst the use of the idea are as follows:
(a) Based on MPC:
Refers to the primary limitation of multiplier. The value of multiplier depends upon the rate of MPC. consequently in case the fee of MPC is lower, the value of multiplier could additionally be decrease. commonly as compared to developed countries charge of MPC is higher in developing nations or less advanced international locations. therefore, the cost of multiplier is also higher in developing countries. but, it isn't authentic in sensible
“GDP is the most important concept of national income is Gross Domestic Product. Gross domestic product is the money value of all final goods and services produced within the domestic territory of a country during a year.” (Thapa.R)
Income inequality not only harms us fiscally, but also affects our mental and physical wellbeing; therefore, it is important to identify the right ways to control wealth distribution among people.
Although Saez’s provides legitimate causes of income inequality, I highly disagree with the thought of making changes to end income inequality. In any diverse economic environment, income inequality will exist due to the rise of some economically successful people and the further development of factors that push people into poverty. I believe income inequality exists due to people not taking advantage of equal economic opportunities, the diversity of people qualified for certain occupations, and the ideas centered around capitalism.... ... middle of paper ...
Firstly, AL is defined as effective labour; this will become an important concept later. The economy is assumed large enough so that all improvements from specialisation have been exhausted, and the only inputs that are of any importance are labour, capital and labour. Combining these assumptions, the nature of the production function is such that it exhibits constant returns to scale. The production function can now be illustrated in its intensive form [IMAGE] Inputting the Cobb Douglas function mentioned earlier, the intensive form of the production function is [IMAGE]. The variables k and y are not of interest in their own right; instead, they help us gain an idea into how the main variables interact.
It measures the GDP as follows: Total National Income + Sales Taxes + Depreciation + Net Foreign Factor Income. Total national income totals the sum of all wages + rents + interest and profits.
For instance, if a business wants to produce 5,000 more t-shirts, yet it will require the purchase of another machine, the marginal cost for the extra t-shirts includes the cost of the new machine. A marginal product describes the additional output that results from adding one more unit of input. It can be calculated by dividing the change in the total product by the change in the variable input. For example, in order to increase the t-shirt productivity by 1000 units, the company may hire two new employees to the production line. In which case, the total change in product is 1000 units. Although, hiring two more employees increases productivity, now the law of diminishing marginal product applies. Diminishing marginal product primarily indicates that increasing one input while retaining other inputs at the same level will initially increase output; however, further increase in the output level will eventually diminish. For example, hiring an extra two employees to increase productivity, will eventually have a limited effect or diminish the average income. Production function is a graph utilized to demonstrate the relationship between physical inputs and outputs, define marginal product, and distinguish allocative
income economies. Economic growth is used to judge the ability of an economy to produce goods and
spending in an economy. The slope of the AD curve is due to the income
The aggregate expenditure model, Figure 1, focuses on the short-run relationship between total spending and real gross domestic product (GDP), assuming that the price level is constant. Aggregate expenditure is the sum of expenditures on consumption, investment, government purchases and net exports.
A production Function in general, without specifying what kind, is related to the output of a production process which starts which starts with the factors of production. The production functions are an integral part for explaining marginal products as well as allocative efficiency. There are different classifications for production functions, and what constitutes them, determined by the type of production. This article of the WIKI aims to focus on the Substitional production function, explaining what it is and means, as well as the limitational, doing the same. (1)
In this report I will be writing about the differences between capital items and revenue items of expenditure and income. I will be describing what each term is and then give examples of how they are used along with what account they can be found in. At the end of the report I will conclude the information with the main differences between capital and revenue income and the differences between capital and revenue expenditure.
National income is the value of goods and services earned by a country in a period of time. The country’s income can be measured in 3 different measures which are GDP (gross domestic product), GNP (gross national product) and NNI net national income).Gross domestic product is the total value of all the final goods and services produced in an economy in a year. It is algebraically expressed as GDP=C+ I + G + (X-M). Gross national product/ gross national income is the total income that is earned by a country’s factor of production regardless of where the assets are located, GNP = GDP + net property income from abroad). The income earned from assets minus income paid to foreign assets to foreign operating domestically is known as net property income from abroad. Net national income is computed the subtraction of indirect business taxes and income of foreigners from the GDP. GDP is one of the most commonly used measures to calculate the countries national income. There are 3 three different methods in GDP which can be taken into account: the output method, the income method and the expenditure method. The output method is used to measure the actual value of the goods and services which are being produced. It is usually grouped according the different production sectors in the economy like agriculture, manufacturing and services. The income method is used to measure the value of income earned in an economy. The expenditure method measures the value of all spending on goods and services in the economy. The spending in all different sectors in the economy include spending by households, firms , governments and spending by foreigners on the exports which is subtracted by spending on imports. This is known as net exports. To gather the nat...
income in the economy. Put simply, It = v (Yt – Yt-1) : where It is
National income is a measure of the value of the output of the good and
This is also known as the ‘Inventory Method’ or ‘Commodity Service Method’. This method approaches national income from the output side. According to this method the economy is...