National Income — full notes
Economics · Macroeconomics - National Income
National Income
1. Definition and the circular flow of income
National income is the total value of goods and services produced by an economy in a given period, usually a year.
The circular flow of income: households supply factors of production to firms, firms pay income (wages, rent, interest, profit) in return; households spend that income buying goods from firms. Leakages (savings, taxes, imports) remove money from the flow; injections (investment, government spending, exports) add money back in.
2. Methods of measuring national income
| Method | Approach |
|---|---|
| Income method | Sum all factor incomes - wages + rent + interest + profit |
| Output method | Sum the value added at each stage of production |
| Expenditure method | Sum all spending - C + I + G + (X - M) |