MEASURES OF ECONOMIC ACTIVITIES

Gross Domestic Production (GDP)

GDP = C + I + G + X

Where 'C' is the only basic element and it denotes value of consumption.

Consumption Items:

    Goods:

        Non-durable Items → Food.

        Durable Items → Furniture.

    Services:

        Doctors, Lawyer.

And where 'I' is representing investments.

Investments:

    Financial Investments → Monetary, Checks.

    Non-Financial Investments → Rent of a building.

And where 'G' represents Government's investments, consumptions and expenditures.

    Govt. Investments → Bonds, Shares, Securities, Govt. Bills, and land rent.

    Govt. Consumptions →

    Govt. Expenditures →

 

Gross National Production (GNP)

GNP = GDP + Income level of overseas people

 

Net National Production (NNP)

NNP = GNP / GDP – Depreciation Cost.

 

National Income (NI)

    It is calculated to avoid the double counting of indirect taxes, subsidies and others.

NI = NNP – Indirect Taxes – Transfer Payments – Statistical Discrepancy – Govt. Subsidies

 

Personal Income (PI) – Personal National Income

PI = NI – Corporate Profit Taxes – Undistributed Corporate Profit + Transfer Payments (Business Consumptions)

 

Disposable Personal Income (DPI)

DPI = PI – Direct Taxes (Income Tax, Property Tax)

	GROSS DOMESTIC PRODUCTION (GDP)	700	Millions
Less:	Depreciation Cost	20
	NET NATIONAL PRODUCTION (NNP)	680
Less:	Indirect Taxes	50
Less:	Transfer Payments	20
Less:	Statistical Discrepancy	5
Less:	Government Subsidies	10
	NATIONAL INCOME (NI)	595
Less:	Corporate Profit Taxes	100
Less:	Undistributed Corporate Profit	200
Add:	Transfer Payments	20
	PERSONAL INCOME (PI/PNI)	315
Less:	Direct Taxes	50
	DISPOSABLE PERSONAL INCOME (DPI)	265

 

Method to Calculate National Income

Income Approach:
Sum of incomes of factors of productions.

Product Approach: All goods and services produced during the year.

Note: Obtained GDP will be same of both methods.

 

Aggregate Supply

All final goods and services which are produced and brought for sale to the market in whole year.

 

    Aggregate Supply Curve: Relationship between all goods and services with their respective price level, as function of price f (P).

 

Time Frames of Aggregate Supply

1 – Short-run Aggregate Supply: The positive relationship between quantities supplied and price level when all other things remain constant. In short-run only price is changing and other factors remain stable, that's why SAS is +ve slop.

2 – Long-run Aggregate Supply: