Resume of National Income

Macro Economics Principle

Arranged By :

Resha Ariella

Accounting 1-AK-A8

1610631030230

Faculty of Economy and Bussiness

University of Singaperbangsa Karawang

Foreword

First, Praise God Almighty for all the blessings so that this task can be completed. Don't forget i would like to thank Mr. Irvan Yoga Pardistya, SE., MM., Ak.

Hopefully this task can increase knowledge and provide benefits to the readers. Due to lack of knowledge and I am still in the learning process, I believe this task is flawed, therefore I hope any recommendation or criticisms from the readers to make this task better.

Karawang, 25th September 2016

Resha Ariella

Definition of National Income

National income is all income received by the whole society or the whole family households within a country. within a specified period, usually within a year. National income can also be defined as national production, which means the value of output produced by all the people of a country in a given time, usually one year.

Concepts of National Income

• Gross Domestic Product (GDP)  

Gross Domestic Product is the amount of product such as goods and services produced by the production units within the borders of a country or a domestic for one year. 

GDP     = Income communities in the country  + Foreign income in the country

or GDP =C+I+G+(X-M)

Where,
C           = Consumption
I             = Investment
G           = Government expenditure
( X - M )= Export minus import

In the calculation of GDP, including also the goods or services produced by foreign companies, as long as the area of the company is still in the territory of a country or the domestic.
Examples such as company A from Arabic, which had branches in Indonesia, the result such as goods and services included in GDP.

A  country has a national income as follows :
1. People Consumption        : Rp 120.000.000
2. Government Expenditure: Rp 300.000.000 
3. Investment Expenditure  : Rp   80.000.000
4. Export                             : Rp  50.000.000
5. Import                               : Rp  35.000.000


Answer :
GDP   =   C  +  I  +  G  +  ( X - M )
           =  Rp 120.000.000 + Rp 80.000.000 + Rp 300.000.000 + (Rp50.000.000 - Rp35.000.000)
           = Rp 515.000.000
 

• Gross National Product (GNP)

Gross National Product is the value of the product such as goods and services produced by the population of a country (national) for one year, including that generated by the citizens of those produced abroad.

GNP = GDP + Net factor income from Abroad(NFIA)
Abu is a Indonesian Citizen who worked in the nation with income Rp2.000.000,00. while Ajax is a foreign citizen who worked for the nation and living in Indonesia with income Rp3.000.000,00 , and Ibrahim is a Indonesian Citizen who worked and living abroad with income Rp4.000.000,00. 

GDP            = Abu's Revenue  + Ajax's Revenue
                    = Rp2.000.000,00 + Rp3.000.000,00
                    = Rp5.000.000,00

Net Income = Ibrahim's Revenue - Ajax's Revenue 
                    = Rp4.000.000,00     - Rp3.000.000,00
                    = Rp1.000.000,00

GNP            = GDP                       + Net factor income from Abroad
                    = Rp5.000.000,00     + Rp1.000.000,00
                    = Rp6.000.000,00

• Net National Product 

Net National Product is the market value of all final goods and services after allowing for depreciation. It is also called National Income at market price. When charges for depreciation are deducted from the gross national product. 

NNP            = GNP - Depreciation
GNP            = C + I + G + (X-M) + NFIA - Depreciation

Depreciation is depreciation of capital goods in the production process during a given period
Example :
Abu is a Indonesian Citizen who worked in the nation with income Rp2.000.000,00. while Ajax is a foreign citizen who worked for the nation and living in Indonesia with income Rp3.000.000,00 , and Ibrahim is a Indonesian Citizen who worked and living abroad with income Rp4.000.000,00.  and Depreciation amounted Rp 1.500.000

GDP            = Abu's Revenue  + Ajax's Revenue
                    = Rp2.000.000,00 + Rp3.000.000,00
                    = Rp5.000.000,00

Net Income = Ibrahim's Revenue - Ajax's Revenue 
                    = Rp4.000.000,00     - Rp3.000.000,00
                    = Rp1.000.000,00

GNP            = GDP                       + Net factor income from Abroad
                    = Rp5.000.000,00     + Rp1.000.000,00
                    = Rp6.000.000,00

NNP            = GNP                     -  Depreciation 
                    = Rp 6.000.000        -  Rp 1.500.000
                    = Rp 4.500.000

• Net National Income

Net National Income is The amount of all revenues received by the public net indirect taxes.

NNI             =  NNP - Indirect Taxes
or NNI         = GNP - Depreciation - Indirect Taxes 

for example :

Abu is a Indonesian Citizen who worked in the nation with income Rp2.000.000,00. while Ajax is a foreign citizen who worked for the nation and living in Indonesia with income Rp3.000.000,00 , and Ibrahim is a Indonesian Citizen who worked and living abroad with income Rp4.000.000,00. as known : Depreciation Rp1.500.000 and Indiret taxes Rp 200.000

GDP            = Abu's Revenue  + Ajax's Revenue
                    = Rp2.000.000,00 + Rp3.000.000,00
                    = Rp5.000.000,00

Net Income = Ibrahim's Revenue - Ajax's Revenue 
                    = Rp4.000.000,00     - Rp3.000.000,00
                    = Rp1.000.000,00

GNP            = GDP                       + Net factor income from Abroad
                    = Rp5.000.000,00     + Rp1.000.000,00
                    = Rp6.000.000,00

NNP            = GNP                   -  Depreciation 
                    = Rp 6.000.000     -  Rp 1.500.000
                    = Rp 4.500.000

NNI             = GNP                   - Depreciation         - Indirect Taxes
                    = Rp6.000.000      - Rp1.500.000        - Rp200.000
                    = Rp4.300.000

• Personal Income

Personal income is the amount of income received by everyone in society, including the earned income without doing anything.

PI               = NNP + Subsidies - Interest Taxes 
or                = GNP-Depreciation+Subsidies-Indirect Taxes
or                = (NNI + transfer payment) - (Retained earnings + insurance expense + social security contributions - Tax of individuals)

for example :
as known
- NNI                            = Rp4.300.000
- Transfer Payment     = Rp     50.000
- Retained Earnings    = Rp 2.000.000
- Insurance Expense    = Rp    300.000
- Social Contributions = Rp    200.000
- Tax of Individuals     = Rp  1.000.000

PI   = (NNI + transfer payment) - (Retained earnings + insurance expense + social security contributions + Tax of individuals)
PI   = (Rp4.300.000 - Rp50.000) - (Rp1.000.000 + 300.000 + 200.000 - Rp 100.000)
       = Rp 4.250.000 - Rp1.600.000
       = Rp 2.650.000

• Disposable Income

The income left after the payment of direct taxes from personal income is called Disposable Income. Disposable income means actual income which can be spent on consumption by individuals and families. 

DI              = Personal Income - Direct Tax

From consumption approach, DI               = Consumption Expenditure + Savings

Example :
PI                  = Rp2.650.000
Direct Taxes = Rp  450.000

Answer : 
DI              = Personal Income - Direct Tax
DI              = Rp2.650.000        - Rp450.000
                  = Rp2.250.000

Calculation Methods of National Income 

• Production Method / Output Approach

According to this method of national income is the sum of the value of goods and services produced by the entire field of work in a country during one year.
All economic activities are divided into three groups:
1. The primary sector
a. Agriculture, livestock, forestry, fisheries
b. Mining and excavation
2. The secondary sector
a. Processing industry
b. Electricity, water and gas
c. Building
3. The tertiary sector
a. Trade, hotels and restaurants
b. Transport and telecommunications
c. Miscellaneous services 

Y = {(P1 x Q1) + (P2 x Q2) + (P3 x Q3) + ... + (Pn x Qn)}
notes :
Y      = National Income
P      = Price
Q     = Quantity  

Answer :
Specify The Amount of National Income :

• Income Method / Income Approach

According to this method, the national income is the sum of all income received by owners of factors of production in a country in one year. It means that national income is the sum of wages or salaries, rent, interest, and profits received by the owners of the factors of production.

Y  =  W + R + I + P
notes :
Y      = National Income
W     = Wages
R      = Rent
I       = Interest
P      = Profit 

for example :
The income received by the public in an economy as follows :
1. Wages and Salaries               Rp 15.000.000
2. Ground rent                            Rp   9.250.000
3. Consumption                          Rp 18.000.000
4. Government Expenditures Rp 14.000.000
5. Capital Interest                      Rp    3.500.000
6. Profit                                         Rp 12.000.000
7. Investment                              Rp   4.500.000
8. Exsport                                     Rp 12.500.000  
9. Import                                   Rp    7.250.000

Income Method :
Y  =  W + R + I + P
Y  = Rp15.000.000 + Rp9.250.000 + Rp3.500.000 + Rp12.000.000
Y  = Rp39.750.000

• Expenditure method  

According to this method, the national income is the sum of all expenditures made by all economic agents (households, firms, government and foreign public) in the country for one year.

Y   = C + I + G + (X-M)

notes :

Y    = National Income

C    = Consumption

I     = Investation

G    = Government Spending

X    = Export

M   = Import  

for example :
The income received by the public in an economy as follows :
1. Wages and Salaries               Rp 15.000.000
2. Ground rent                            Rp   9.250.000
3. Consumption                          Rp 18.000.000
4. Government Expenditures Rp 14.000.000
5. Capital Interest                      Rp    3.500.000
6. Profit                                         Rp 12.000.000
7. Investment                              Rp   4.500.000
8. Exsport                                     Rp 11.500.000  
9. Import                                   Rp    8.250.000

Expenditure Method :
Y   = C + I + G + (X-M)
Y   = Rp18.000.000 + Rp4.500.000 + Rp14.000.000 + ( Rp11.500.000 - Rp8.250.000)
Y   = Rp39.750.000

• The benefits of calculating national income

If observed, the development of the national economy is always changing. The economy caused by the change of national income. Therefore, the increased national income showed a community economic development of a country.  

The objectives of national income another study, namely:
1. To obtain an accurate estimate of the value of goods and services produced in a country in one year. 

2. To help plan and implement development programs futures to achieve development goals.
3. To examine and control the factors that affect the level of the economy of a country.  

Moreover, there are several benefits that you would get if you study the national income, among others:

1. Know and analyze the economic structure of a country, from the national income accounts, you can find out whether a country's economic structure tend to be industrial, agricultural, or services.
2. Comparing the state of the economy from time to time because of national income are recorded every year. You will have record numbers of economic development from time to time so as to compare the economic development from time to time.
3. Compare between regions economy, both between districts and between provinces.
4. Being a comparative basis (comparison) with other economies. Help formulate government policy, especially in the economic sector.

 

Refrence 

1. http://www.softilmu.com/2015/11/pengertian-konsep-manfaat-pehitungan-pendapatan-nasional-adalah.html
2. http://www.ekonomi-holic.com/2014/01/pendapatan-nasional.html
3. http://smapeunaron.pas.sch.id/pendapatan.htm
4. http://www.ilmu-ekonomi-id.com/2015/12/konsep-pendapatan-nasional.html