AS Level Economics Lesson summary 20250413
15.1 National Income Statistics
National Income is the value of the output of a country.
15.2 GDP & GNI
Gross domestic product is the total value of output, income or expenditure in a
country.
GDP = Aggregate Demand (AD) = C + I + G + (X-M)
C = Consumption by household,
I = Investment by firms,
G = Government spending,
(X-M) = Export revenue (X) - Import Expenditure (M)
Gross National Income is the total value of income earned by the country’s
residents and firms regardless of where it is earned.
GNI = GDP + (net property income from abroad)
15.3 Methods of measuring GDP
Output method
1. Total value of final goods and services produced - total amount that
consumers pay for goods and services.
2. Value added at each stage of production – Profits made by all firms in the
country.
Income method
Total factor income from all factors of production:
1. Wages of labour
2. Rent for land
3. Interest for capital
4. Profit for entrepreneur
Expenditure method
Total expenditure by the 4 sectors in the economy:
Consumer expenditure by households (C)
Investment expenditure by firms (I)
Government expenditure (G)
Net export from International Trade – Export revenue – Import expenditure (X-M)
15.4 Market prices and basic prices
Market prices are prices charged to consumers and include indirect taxes and less
indirect subsidies.
Basic prices (or factor costs) are prices not including indirect taxes or indirect
subsidies.
GDP (market prices) = GDP (basic prices) + indirect taxes – indirect subsidies
15.5 Gross values and net values
Gross values include gross or total investments.
Net values include net investment or less depreciation or capital consumption.
Net Domestic Product (NDP) = GDP – depreciation
Net National Income (NNI) = GNI – depreciation
16.1 The circular flow of income
The circular flow of income model shows how income, spending and output move around an
economy.
16.2 Difference between open and closed economy
A closed economy has no international trade and does not export or import goods and
services.
An open economy has international trade with export or import goods and services.
16.3 The impact of injections and leakages on the circular flow
Leakages are money that flows out of the circular flow of income (savings, taxes and
import expenditure.
Injections are money that flows into the circular flow of income (investments,
government expenditure and export revenue).
16.4 Equilibrium and disequilibrium income
Equilibrium occurs when injection is equal to leakages.
Disequilibrium occurs when injects and leakages are not equal.
If injections > leakages, the circular flow of income will get larger.
If injections < leakages, the circular flow of income will get smaller.
Practice questions
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(Note: Gross value added is the same as GDP)
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