National Income Essay

2759 words - 11 pages


Gross Domestic Product is the most important economic variable, and therefore much time and efforts are dedicated to its studies. In this paper I will analyse the determinants of the national income, its distribution to the factors of production, the determinants for good and services, and the factors which bring the supply and demand for goods and services into equilibrium.

List of Content:
1. Definitions
2. Determinants of National Income
3. Distribution of National Income to the Factors of Production:

        Firm's Demand for Labor;
        Firm's Demand for Capital.
4. The Division of National Income
5. The Determinants of the Demand for Goods and Services:
a) Consumption;
b) Investment;
c) Government Purchases.
6. The Equilibrium of the Supply and Demand for Goods and Services:
a) Equilibrium in the Market for Goods and Services;
        Equilibrium in the Financial Markets.
        Changes in Saving: The Effects of Fiscal Policy;
         Changes in Investment Demand.
7. Conclusion


Factors of Productions: The inputs used to produce goods and services
Production Function: The mathematical relationship showing how the quantities of the factors of production determine the quantity of goods and services produced.
Constant return to scales: A property of a production function whereby a proportionate increase in all factors of production leads to an increase in output of the same proportion.
Factor prices: The amounts paid to the factors of production.
Marginal product of labor: The extra output the firm gets from one extra unit of labor, holding the amount of capital fixed.
Diminishing marginal product: A characteristic of a production function whereby the marginal product of a factor falls as the amount of the factor increases while all the other factors are held constant.
Real wage: The payment to labor measured in units of output rather than in dollars.
Real rental price of capital: The rental price measured in units of goods rather than in dollars.
Economic profit: The amount of revenue remaining for the owners of a firm after all the factors of production have been compensated.
Accounting profit: The amount of revenue remaining for the owners of a firm after all the factors of production except capital have been compensated.
Closed Economy: A country that does not trade with other countries.
Disposable income: Income remaining after the payment of taxes.
Marginal propensity to consume: The amount by which consumption changes when disposable income increases by one dollar.
Nominal interest rate: The return to saving and the cost of borrowing without adjustment for inflation.
Real interest rate: The return to saving and the cost of borrowing after adjustment for inflation.
National saving: A nation's income minus consumption and government purchases; the sum of private and public saving.
Private saving: Disposable income...

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