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 ...
There is also the damage that the inequality does to the society and the government. Thomas Jefferson once said, “The small landholders are the most precious part of a state.” Today that would mean that the middle class is the most important part of our society, however, the farther we move into the future the weaker the middle class becomes (Krugman, 587). The America that we live in is unequal in income and social aspects. The rich do not live the same lives as those that are less fortunate, and the less fortunate do not get to enjoy the perks that come with the lives of the rich people.
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.
In the following report we have first tried to clear the concept of the multiplier then carried on with explaining various theoretical aspect of tax multiplier, government spending multiplier and planned investment multiplier. Then we have tried to compare the change in expenditure and change in GDP in Indian economy by providing data which was extracted through a secondary source.
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.
If income inequality continues to grow, the economy will break down. For example, if the housing price continues to rise because of the rich people, poor people will not have a place to live since they cannot afford to buy these expensive houses. When this happens, it will create another housing bubble because the houses are not worth buying, which means the market value of the house exceeds the house’s value; therefore, nobody will buy the house including the riches since they already have houses to live. Moreover, poor people do not believe they can get access to wealth because they cannot afford anything, and they cannot afford the tuition fees for a good education, which is the traditional route to success.
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.
income economies. Economic growth is used to judge the ability of an economy to produce goods and
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...
...ountry depends upon the nature and condition of the economy as well as the purpose of undertaking this exercise? The best way to arrive at national income will be to employ all these three methods so as to permit their cross- checking ensuring greater accuracy and throwing more light on details.
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