Notesale: Turn your study into money

Document Preview

Extracts from the notes are below, to see the PDF you'll receive please use the links above

---

How are national income, expenditure and product measured? What difficulties
can be encountered in their measurement and interpretation? Discuss the
usefulness of these measures as aids to decision making for governments and
business
...
This is the reason why, the measurement of national income,
expenditure and product can be used as aids to decision making by governments and
businesses
...
This is essay going to provide information about the three types of measuring
Gross Domestic Product (GDP)
...
Perkin, M
...
Matthews 1997, p
...
The three methods of measuring GDP are product,
income and expenditure method
...
It will also explain how these measurements contribute for decision making in
governments and business
...
It is focused on firms and
adds up all their production
...
432)
...
For example, all the production of: cars, clothes, perfumes, cell phones, etc
...
All of these outputs and services
are grouped together in wide categories, such as manufacturing, construction and distribution
...
Let’s take, for example a product as
simple as an orange juice
...
Then it sells its product to a manufacturer who turns the oranges into
juice
...
In each of stages, firms are involved in the distribution
process
...
As a support of that example, the statement of Sloman can be
considered: ‘The sum of all values added by all the various industries in the economy is
known as gross value added at basic prices (GVA)’ (Sloman J
...
432)
...
First of all, we have
stocks
...
This is
known as stock appreciation
...
Sloman (2000, p
...
Another qualification is the government
services
...
2000, p
...
The third one is ownership of dwellings and the final one is, taxes
and subsidies on products
...


B) Income Method:
The income method is the second method used for measuring GDP
...
Labour, for example, must be employed, land must be
rented and capital must be used
...
Sloman (2000, p
...
This must be
the same as the sum of all values added, which is the difference between a firm’s revenue
from sales and the costs of its purchases from other firms
...
Thus, because all value produced must be
owned by someone, the value of production must be equal to value of income
...
344-345)
...
345)
...
The third

type is compensation of employees
...
345)
...
The first one is known as stock or
inventory appreciation
...
The second one is transfer payments
...
Next we have direct taxes and finally taxes and subsidies
...
To calculate GDP we should
add up all expenditure on final output
...
The first one,
consumer expenditure, usually marked with C, includes all expenses on goods and services
which give no profit to the household
...
The
second one is the government expenditure (G) which includes all non-market services but
excludes transfer payments such as pensions, for instance
...
, Hinde K
...
603)
...

Finally, we have imports (M)
...
We also subtract the imported component from
exports, for example raw materials (J
...
434)
...
One of the obstacles, which are encountered of measuring
GDP using the product method, is the problem of double counting
...
Let’s imagine that a manufacturer sells a cell
phone to a retailer for the price of £300
...
To find out how much this cell phone contributes to the GDP we do not add £300
received by the manufacturer to the £400 received by the retailer
...
This is the reason why we should just count the final value which is
400 pounds
...
We must be
very careful to include only the values added in the particular year in question
...
Final problem concerned with stocks
is the stock appreciation
...


Usefulness for Decision Making for Governments and Business:
As a consequence of the three broad approaches explained above we can understand that
they are commonly used for small business valuation
...

The key objective of the income based methods is to determine the business value as a
function of the economic benefit
...
BBC (2010, April 22), this article explains how exactly GDP
contributes for decision making for both governments and business
...
GDP is also used when planning economy policy
...
GDP is used very commonly from the EU, for example, in order
to estimates as a basis determining different countries’ contributions to the EU budget’
...


Conclusion:
To calculate GDP we are using three types of methods
...
As it is explained in the essay these three methods
face some difficulties in their measurement and interpretation such as double counting,
stock/inventory appreciation, etc
...
This is

essay explored all types of calculating GDP, how they help both governments and business
and provided information and examples for all of them
...
Hinde K
...
(2007) Economics for Business, Fourth Edition,
Graficas Estella, Navarro, Spain
2
...
, New York
3
...
, Powel M
...
(1997), Economics, Third Edition,
Addison Wesley Longman Limited
4
...
(2000), Economics, Fourth Edition, Pearson Education Ltd,
England
5
...
bbc
...
uk/1/hi/88618

---