Taxes = National Income
The third way is the incomes approach Method Two: this
method adds the income created by each business, i.e. the value added by each business. This is the value of a business's output minus its purchases form other businesses. This means calculating for every buriness:
Factor payments = Wages + Rents + Interest Payments
Profits = Value of Output - Factor Payments
- Purchases from Other Firms
Value Added = Value of Output - Purchases from Other Firms
it follows from the definition of profits that
Value Added = Factor Payments + Profits
Sum of Value Added = National Income
= Sum of Factor Payments + Profits
1. The Inflationary gap is the actual real GDP minus the potential GDP which occurs when there is too much demand in the economy (Definitions, 2005). It is an excess of investment spending over the real saving that becomes available at full employment. When output is above its full employment level, there is an inflationary or expansionary gap; when it is below its full employment level, there is a deflationary or contractionary gap (Wessels, 2000, 562).
2. MPS is the marginal propensity to save, and is the added savings divided by the added disposable income that caused savings to go up (131).
3. APS is the average propensity to save, the percentage of savings to total disposable income (Determinants, 2005).
4. APC is the average propensity to consume, which is consumption divided by disposable income, and does not have to equal the MPC (131).
5. The Consumption Function shows the level of consumption at different levels of disposable income, holding constant the other determinants of consumption (Wessels, 2000, 559).
6. The economy can be self-regulating even if wage rates are not flexible by frictional unemployment, and structured unemployment (Wessels, 2000, 66-67). Frictional unemployment occurs when worker...