Measuring Economic Performance

• National Product


  Products produced in the country used to measure economic performance
• The more G&S we produced, the better will be the well-being of the people residing in the country
• National Product (definition)


  Total G&S produced in the economy
• Outward shift of PPC

  Resembles positive economic growth
• G&S are used to measure economic performance
• It's not fair to compare the performance between nations in terms of physical quantity
• Technological products relatively have higher value compared to agricultural
• Gross Domestic Product (GDP)


  Most commonly used method to measure national product
• GDP


  Total market value of all final goods and services produced in the economy in a given period of time
• What GDP does not measure

  • Intermediate goods
  • Non-current production
  • Non-productive financial transaction
  • Illegal transaction
  • Non-market transaction
• How to calculate GDP

  1. Add up all expenditure made by all sectors in the economy

  2. The amount that was spent must be equal to value of production (GDP)

  3. Measure the aggregate amount of income

  4. Assumption: no leakage & injection

  5. If there is no leakage and injection, total income received by household will equal to sales revenue received by business sector
• Three methods to calculate GDP

  • Expenditure Method
  • Income Method
  • Production Method
• Expenditure Method


  C + I +G + (X-M)
• Expenditure Method components


  • Consumption Expenditure (C)
  • Gross Private Domestic Investment (I)
  • Government Expenditure (G)
  • Net Export (X-M)
• Consumption Expenditure (C)


  Consumer durable<|>Consumer non-durable<|>Consumer services
• Gross Private Domestic Investment (I)


  Expenditures by the business sector on new plant and equipment (capital goods) in a given time period plus changes in business inventory
• Government Expenditure (G)


  Total budget of the federal, state, and local governments, excluding transfer payments
• Net Export (X-M)


  Exports (X) - Imports (M)
• Gross National Product (GNP)


  Market value of all final goods and services produced anywhere around the world by using local resources
• Net National Product (NNP) or National Income (NI)


  Market Value of all goods and services produced by Malaysian anywhere around the world by using local resources adjusted by depreciation
• Income Method


  National Income is the sum of all incomes of all productive resources owned by the household sector: wages, rents, interest, profit, and proprietor's net income
• Income Method components


  • Compensation to Employees
  • Rental Income
  • Net Interest
  • Profits
  • Proprietor's Income
• Production Method


  Adds up the value of all the goods and services produced in the economy, industry by industry
• Personal Income


  Also known as before tax income, of which a household is not free to consume all of the income
• Disposable Personal Income


  Remaining income after personal taxes have been accounted for, which the household is free to consume or save
• Income earned but not received

  • Contribution to Pension Plan / EPF / SOCSO
  • Corporate Income Tax
  • Undistributed Corporate Profits
• Income received but not earned

  • Welfare benefit payment
  • Unemployment compensation
  • SOCSO benefit
  • Pension benefit payment
  • Educational grants or scholarships
  • Zakat benefit
• GDP ignores externalities such as pollution, depletion of ozone layers, and depletion of resources
• GDP does not indicate how much of the production each person in the society receives (per capita GDP)
• Production may increase due to technological advancement, but if it increases as a result of people having to work harder or longer hours, the net benefit will be less
• Nominal GDP is calculated based on the current price of the goods, so an increase in nominal GDP does not reflect an increase in the physical outputs
• GDP excludes production of goods and services that do not go through market transaction, such as do-it-yourself job, underground economy
• Real GDP


  Total market value of all final goods and services produced in the economy in a given time period, expressed in constant dollars
• Nominal GDP


  Total market value of all final goods and services produced in the economy in a given period of time, expressed in current dollars