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2.2 The Important Concepts In National Income Accounting
2.2 THE IMPORTANT CONCEPTS IN NATIONAL INCOME ACCOUNTING
Gross Domestic Product (GDP)
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The total money value of all final goods and services produced within a country in a given time period.
The output produced by foreign workers in Malaysia such as by Indonesians or Nepalese will be included in the GDP.
The total market value of all final goods and services produced by the country's residents in a given time period.
The total amount of income earned by citizens of the country, regardless of where they.
Gross National Product (GNP)
Relationship between GDP and GNP
Net factor income from abroad will be included in the calculation of GNP. Net factor income paid abroad will be included in the calculation of GDP.
GNP = GDP + net factor income from abroad GDP = GNP - net factor income from abroad
Net National Product (NNP) or National Income
The market value of the net output of final goods and services produced by a nation during a year.
The sum of GNP after deducts the value of capital consumption or depreciation during the year.
Depreciation or capital consumption is a wear and tear on the economy ’s stock of equipment and structures.
The current price in the market through the forces of demand and supply. The actual prices paid by consumers, which includes indirect taxes and excludes subsidies given to producers. Indirect taxes are known as taxes on expenditure, sales tax or consumption tax.
Factor cost includes subsidies and excludes indirect tax.
Market Price (MP)
Factor Cost (FC)
The actual price receives by the sellers. The total of all income earned by all factors of production.
The difference between Market Price and Factor Cost
Market Price = Factor Cost (+) Indirect Taxes (-) Subsidies Factor Cost = Market Price (-) Indirect Taxes (+) Subsidies
Personal Income (PI)
Personal income is the income that is actually received by individuals and households in an economy in a year. Personal income can be spent, used to pay taxes or be saved.
The deductions made from national income are as follows:
Corporate Income Taxes
A portion of corporate profits paid out as corporate income tax before being distributed to shareholders.
Retained Earnings
A portion of corporate profits retained by corporations and distributed to shareholders.
Social Security Contributions (SOCSO)
A certain percentage of the workers’ income as contribution to provident funds or pension funds. This deduction will reduce the amount of income available to the worker. SOCSO is deducted for the workers who earn less than RM1,500 per month. Insurance Premium A certain percentage of income to pay for insurance.
Transfer Payments
Social security benefits such as unemployment allowance, old age pensions and other benefits to the public where these benefits are not from any productive work.
Personal Income = National Income (+) Transfer payment (+) Interest in consumer loans (+) Interest in government loans (+) Dividends received by individual (-) Undistributed company profit/retained earning (-) Business tax (-) Company/corporate income taxes (-) Social security contribution (SOCSO) (-) Employee Provident Funds (EPF) (-) Insurance Premium
Disposable Personal Income (DPI)
Personal income remaining after payment of all personal direct taxes or zakat.
Disposable Personal Income =
Personal Income (-) Personal income tax (-) Zakat (Muslim only)
The average income of a country's citizens. Calculated by dividing national income of the country by its total population.
