1
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National Income
is the monetary or market value of final goods and services produced or income
earned in an economy, over a period of time usually a year.
2.
National Income can be measured using;
(i)
Expenditure method:
it is the sum total of all expenses incurred in an economy by the 3 economic
agents; consumer, firm & government. Calculating the national income
through this method requires Y=C+I+G+(X-M). Where C is consumption expenditure,
I is Investment (firm), G is government, X is export and M is import.
(ii)
Output method:
It is the sum of all final product produced by the various sector in the
economy. In calculating national income using this, the value added approach
must be applied in order to avoid double counting.
(iii)
Income method:
It is the sum of all receipt by all factors of production i.e. rewards to
factors of production (Rent, interest, wages & salary, rent)
3.
Gross Domestic Product (GDP) is the monetary value of final goods
and services produced within the geographical boundary of an economy over a
period of time usually a year, irrespective of their nationality.
4.
Real
GDP is the value of goods and services produced at constant price (base
year price). Here value of a product is being adjusted for inflation.
5.
Nominal
GDP is the value of goods and services produced at current price. Here
there is likelihood of inflation to affect the GDP if there are changes of
price between the periods.
6.
Gross
National Product (GNP) is the monetary value of final goods and services
produced by nationals of a country over a given period of time usually a year,
irrespective of where they reside. GNP =
GDP + Net Factor Income from Abroad (NFIA)
7.
Net
National Product (NNP) is the net monetary value of final goods and services produced by
nationals of a country over a given period of time usually a year, irrespective
of where they reside after adjusting for depreciation. NNP = GNP – Depreciation (Consumption Capital allowance)
8.
National
Income (NI) is regarded as GDP at factor cost. NI = NNP + Subsidies – Indirect Business Tax.
9.
Personal
Income (PI) is the income which is left for an individual to spend after
all deduction has being made. PI = NI +
Transfer payment – Social security contributions – Retained earnings –
Uncorporated Tax (CIT)
10.
Disposable
income (Yd) is the income which is left for an individual to spend after
the deduction of personal income tax. Yd
= PI – Personal Income tax (PIT)
11.
Per Capita Income (PCI) = It is the income per head which is
derived by dividing NI by population. (NI/population).
12.
Uses of National Income are;
·
Estimating
the magnitude of a country’s PCI
·
Measure
Standard of living
·
Evaluate
performance of different sector of the economy
·
For
economic planning
13.
Problems facing National Income are;
·
Problem
of non-marketable goods and services
·
Inaccurate
national income statistics
·
Depreciation
·
Problem
of double counting
14.
National Income Determination is an investigation process on how
aggregate demand relates to national income, and how in turn this relationship
determines the gross national product. The equilibrium level of gross national
product is therefore that level at which aggregate demand equal gross national
product. It is also the level of income at which leakages or withdrawal equals
injection
15.
Leakages are those variables which withdraws
money from circular flow of income, they are; Savings (S), Tax (T) and Import
(M)
16.
Injections are those economic variables which
pump money into the circular flow of income, they are; Government spending (G),
Investment (I) and export (X)
17.
Circular flow of income shows the real and monetary flow of
goods and services between the economic agents (Household, firm and government).
The circular flow of income could be between two sectors (Household and firm),
three sector (Household, firm and government) and four sector (individual,
firm, government and foreign sector).
18.
Transfer payments are the payments or receipt not from the
resulting contribution to productive activities in the economy.
19.
Final goods are goods that do not have to be
processed or resold before final sale i.e. finished products (goods ready for
consumption)
20.
Intermediate goods are goods that serve as input in the
production process i.e. raw material for the final goods.
21.
The consumption function is the relationship between
consumption and its variables (autonomous & induced consumption, as well as
income). The consumption function is written as C = a + by, where c is
consumption, a is autonomous
consumption, b is marginal
propensity to consume; y is income
and bY is induced consumption.
22.
Autonomous consumption is a consumption that does not vary
with the level of income. When income level is Zero consumption still take
place. It is denoted by the letter a.
23.
Marginal Propensity to Consume (MPC) it is the change in consumption which
is caused by a change in income (∆c/∆y). It is denoted by the letter b.
24.
Induced consumption is that consumption that directly
varies with the level of income. As income increases, consumption also
increases converse is the same for a decrease. It is denoted by bY
25.
Average propensity to consume (APC) is the ratio of consumption to income
(C/Y)
26.
Savings is that part of income which is not
spent.
27.
The savings function is the relationship between savings
and its variables (autonomous & induced savings, as well as income). The savings
function is written as S = - a + (1-b)Y,
where S is savings, - a is autonomous savings, (1- b) is marginal propensity to save; y is income and (1 – bY) is induced savings.
28.
Marginal propensity to save (MPS) is the change in savings which is
caused by a change in income (∆s/∆y). It is denoted by 1 - by.
29.
Y = C + S
30.
MPC +
MPS = 1
31.
APC + APS = 1
32.
Multiplier’s effect tells us how many times investment
must multiply itself to yield a particular amount of income (output). It
doesn’t necessary have to be investment, but also the GDP variables, which are
consumption and government spending too. The formula for multiplier effect
which is denoted by K = 1 / 1-mpc or K =
1/mps.
33.
Accelerator’s effect is the change in output (Income)
divided by change in Investment (∆Y/∆I). Investment is dependent upon the
variation in Output. The higher the rate of (output), the higher the rate of
the investment.
34.
Investment is an activity of spending resources
on creating asset or capital accumulation that can generate income over a long period
of time. It is the expenditure on capital goods. Net Investment = Gross Investment less depreciation. The definition
above refers to that of net investment. Investment does not vary with the level
of income but rather interest rate and output level, hence investment spending
is said to be autonomous.
35.
The Equilibrium National level of
income can be seen from two approach;
·
Aggregate
Demand / Aggregate supply approach. Here at equilibrium, AD = AS
·
Injection
/ Leakage approach. Here at equilibrium, Injection
= Leakage. That is GIX = STM. Where
G is government spending, I is Investment spending, X is export, S is savings, T is tax
and M is Import.
36.
The Macro Economic goals of every
economy are;
·
Full Employment: the rate of unemployment is minimum
·
Price stability: there are no substantial changes in
prices between periods. Here, changes in price level are kept at its barest minimum.
·
Increased output (GDP): There is an increase in the potential
output (real GDP) in an economy
·
Balance of payment equilibrium: There is quality between the rate of
Export and Import.
37.
Money is anything that is regarded as a
means of exchange, store of value and also used in the settlement of debts.
38.
The Barter system is a system where goods where
exchanged for goods, services for services and goods for services.
39.
Problems associated with the barter
system where;
·
Problem
of double coincidence of want
·
Problem
of Store of Value
·
Problem
of Measuring value
·
Problem
of Divisibility
·
Problem
of deferring payment.
40.
Functions of Money:
·
Money
as a Medium of exchange
·
Money
as a measure of Value
·
Money
as a store of value
·
Money
as a standard of deferred payment
41.
Features of Money:
·
Portability
·
General
acceptability
·
Divisibility
·
Homogeneity
·
Durability
·
Relative
scarcity
·
Relative
stability
42.
Types of Money:
·
Commodity
money
·
Metallic
money
·
Fiat
money
·
Quasi
money / Near money
·
Demand
deposit money
·
Time
deposit money
43.
Demand for money are the reasons why people hold money
and they are;
·
Transactionary motive: cash held for daily transaction due to the gap between the
receipt and payment of expenses.
·
Precautionary motive: cash held for unforeseen
contingencies e.g. sicknesses
·
Speculative motive: cash held for speculative dealing in
the financial market of stock and bonds.
44.
Supply of money (money) is the amount of money available in
circulation in an economy. There are three alternative views regarding the
measure of money supply. The most common view is associated with the
transactional and Keynesian thinking which stress the medium of exchange
function of money. According to this view, money supply is defined as currency
with the public and demand deposit with commercial banks.
From this point of view, money supply
can be measured/viewed from;
·
Narrow definition (M1): C + DD (where C is cash and DD is
demand deposit money)
·
Broad definition (M2): C + DD + TD (where TD is time deposit)
45.
Quantity Theory of Money
The quantity theory of money states that if quantity of money (money
supply) is doubled, other things being equal, the value of money will be halved
(or the price will be twice as high as before), if the quantity of money is
halved, the value of money will be doubled (or the price will be halved). In
the transaction version of the
quantity theory of money which was associated with the name Irving Fisher, he represented his
theory in the form of an equation of exchange.
MV = PT
Where M is money supply
V is the velocity of money
P is the price of the commodity
T is the level of transaction.
PT is real GDP
V = PT/M
46.
Inflation is the persistent rise in the general
price level of goods and service. It is caused when too much money chase fewer
goods.
47.
Two common types of inflation are;
(i)
Demand-pull Inflation: caused by excess of demand relative
to supply.
(ii)
Cost-Push inflation: caused by increased/high cost of
production.
48.
Common Measure of Inflation are;
·
Consumer
Price Index (CPI)
·
Human
Development Index (HDI)
·
GDP
deflator
·
Producer
Price Index
49.
Other types of inflation;
·
Creeping inflation: low rise in price between 2 – 4%
·
Trotting inflation: rise in price between 5 – 9 %
·
Galloping inflation: rise in price between 10 – 20 %
·
Hyper inflation: rise in price by over 20 %
50.
Inflation
can be controlled majorly through monetary
policy & fiscal policy measures. It
is a mechanism through which government use to control the volume of money
supply and direction of credit in the economy for the purpose of achieving the
macro-economic objectives. Monetary policy can be either (i) Expansionary: ways by which money can be pumped into the
economy or (ii) Contractionary: ways
by which money can be withdrawn or reduced from the economy.
51.
Monetary policy used by Government include:
·
Open Market Operation (OMO): buying and selling of government
securities such as Treasury bill & certificate.
·
Bank rate: Lending rate of the central bank
·
Reserve requirement: reserved cash which is to be kept in
the vault of the bank.
·
Selective Credit Control: used by government to influence
specific types of credit for particular purposes or sectors of the economy.
·
Moral Suasion: persuading commercial banks to take specific steps that are consistent
with government macro economic targets.
·
Special Deposit: CBN’s directive to commercial banks
to set aside specified amount of deposit in their vault in order to reduce
their lending capacity.
52.
Fiscal policy is the use of public expenditure/government
spending and taxation by the ministry of finance to control, regulate and
direct the economy to the desired direction.
53.
Direct Measure of control refers to the deliberate pricing
measure undertaken by government to control and checkmate inflation in the
economy. It involves the use of price control and rationing of scarce goods in
the economy to tame inflation.
54.
Unemployment refers to the situation where people
who are willing and capable of working are unable to find suitable paid
employment.
55.
The types of unemployment are:
·
Structural unemployment: unemployment caused by changes in
structure of an economy, making a worker’s skill obsolete to meet up with the
changes.
·
Frictional unemployment: unemployment cause by workers
temporary out of job, due to period in which it takes the worker to find paid
employment.
·
Seasonal unemployment: unemployment caused by seasonal
variations in the activities of particular industries, climatic changes,
changes in fashion/tastes as well as demand variation for some
products/services.
·
Cyclical unemployment: unemployment caused by turn down of
business cycle i.e. deficient demand.
·
Classical unemployment: unemployment caused by high wage
rate.
56.
International trade is referred to be the trade (exchange
of goods & services) between two or more countries.
57.
Reasons for international trade are:
·
Factor
immobility
·
Differences
in natural resources
·
Geographical
and climatic differences
·
Different
Markets
·
Mobility
of goods
·
Different
transport cost
·
Different
currencies
58.
Terms of trade refers to the number of a country’s
export good that can be exchanged for a unit of its import. Alternatively, it
can be defined as the ratio of the price of a country’s export goods to the
price of its import goods price. Px/Pn where Px is the price of export and Pn
the price of the import.
59.
Balance of payment is a systematic record of all
transactions between the resident of a country and the rest of the world. It
shows the amount of import and export of a country to the rest of the world.
60.
There are 3 basic account in the
balance of payment namely;
·
Current account
·
Capital account
·
Official settlement account
61.
Current account itself is made up of some sub-account
which are;
·
Merchandise trade account: This account records the import and
export of tangible goods.
·
Service Account: This account records the import and
export of services
·
Unilateral transfer: records transactions such as gifts
aids, relieves and other transfer payment for which there are no obligations to
pay back.
62.
Capital account records international flow of loans
and investment, capital flow can be classified as long term or short term. International flow of investment can
also be classified or group into direct
or portfolio investment. They are direct
when they involve concrete investment or real investment e.g. (investment in
building factories, landed properties etc). Portfolio Investment refers to the purchase of bonds securities,
shares, in foreign companies.
63.
Official settlement account records record changes in a nations official
liabilities to foreign holders and international reserves.
64.
Balance of payment equilibrium; bop account is said to be in equilibrium when entries on both debit
and credit side are equal. When the credit side exceeds the debit side the bop
account is said to be favourable,
and when the debit side exceeds the credit the bop is said to be unfavourable.
65.
Public finance is a science that deals with the
revenue and expenditure operations of the public authority.
66.
Public revenue refers to the total income that
accrues to the government of a country from the various sources.
67.
Sources of public revenue:
There are two major sources of public revenue these are recurrent revenue
and capital receipt.
Re-current revenue refers to the income that’s
recurs regularly these includes;
·
Taxes
·
Government
investment
·
Tolls: amount paid for the use of certain
road, bridges, etc.
·
Profit from commercial enterprise
·
Money
from court fees
·
Rates and rents: Utility payments such as; water &
electricity payment
·
Royalties: money paid by mining companies to government
·
Issuing of licenses: money paid for the use of vehicle,
imported material etc.
68.
Taxation is a compulsory levy imposed on an
individual of firm of a particular country by the government.
69.
Cannon of taxation
·
Convenience: tax should be made convenient to
the payer.
·
Certainty: time, mode, other things relating
to tax must be certain and known to the tax payer.
·
Buoyancy: should be capable of yielding more
revenue.
·
Flexibility: Tax system should be easy in terms
of amendment.
·
Economic: Cost of collection should not be
more than revenue
·
Equality: Individual should pay tax charged according
to his/her ability and capacity
70.
Direct tax refers to tax levied directly on
individual and business firm, in this form, the tax payer bears the burden e.g.
PAYE. While indirect tax are taxes
imposed on goods and services, the burden is borne by the consumer e.g. excise
duties, value added tax (VAT) etc.
71.
Type of taxation:
·
Progressive Tax: This tax proportion/rate from the
people earning higher income than that of people earning lower income. The
higher you earn, the higher you pay tax and the lower you pay tax. Here Income
and tax are directly related.
·
Regressive Tax: The higher you earn, the lower you
pay tax and the lower you earn the higher you pay tax. Here, income and tax are
inversely related.
·
Proportional Tax: Irrespective of the income level,
the same percentage of tax is paid by both the rich and poor income earner.
72.
Public expenditure
refers to the total expenses incurred by the public authorities at the federal,
state and local government. It refers to the expenses which the government
incurs in the performance of its operation.
73.
Needs for Government expenditure are;
·
Defense
·
Food
and Agriculture
·
Political
expenditures
·
Social
service expenses
·
Grant
to state and local authorities
·
Miscellaneous
expenditure etc.
74.
Public debt refers to the sum total of debt
owned by the government of a country both internally and externally, the debt
may or may not be with interest.
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