“Domestic and National Indicators”

 > Explanatory Article by Marios Kyriakou, MSc Economics


About the author: Marios Kyriakou has a bachelor’s degree in Economics from the University of Cyprus and a master’s degree in Economics from the University of Warwick. He is also a holder of CySEC’s Advanced Certificate in Financial Services Legal Framework and a professional in Online Trading, Forex and CFDs with more than 7 years of experience.

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<Last updated 11.04.2020>

Dear reader,

Hi! If you are interested in Economics, I’ve prepared the below to help your understanding about indicators. You should take a look at this short article in which I discuss how measuring output is distinguished between Domestic and National Indicators.

When we have an open economy, it means that there is a flow of income that is not flowing only inside the geographical borders of the country but both flows in and out of the country. Total Output/Production in a country is distinguished between domestic and national product/output depending on where production took place and the permanent place of factors of production.

Businesses owned by foreigners (permanent residents of other countries) produce and provide/sell goods in this country receiving income. This income is money flowing outside this country (profits, interest, dividends, remuneration) > Income to Abroad.

Businesses owned by domestic residents (permanent residents of this country) produce and provide/sell goods in countries abroad receiving income. This income is money flowing inside this country (profits, interest, dividends, remuneration) > Income from Abroad.

> Net Income from Abroad: The difference between the Income to Abroad and the Income from Abroad.

> National Product (NP) is the output that is produced by permanent residents of a country, no matter where production took place, during a period.

NP= Domestic Product  + Income from Abroad – Income to Abroad (Net Income from Abroad).

An example: A person works in London temporally but is permanent residence of Cyprus (For Cyprus is Income from Abroad but also domestic output for the UK).

> Domestic Income: Income the factors of production earn when used within the geographical borders of the country for a period of time, respective of their nationality.

> National Income: Income earned by the permanent residents of a country, irrespective of where production took place.

> National Expenditure: Total expenditure for buying national product.

> Domestic Expenditure: Total expenditure for buying domestic product.

What is Depreciation and why is it taken in to account? > The periodical decrease of the value of fixed capital used in production. A reduction in the value of an asset over time, due in particular to wear and tear.

> Net National Product = National Product – Depreciation

Now, what major role does the government haw in an economy?

> Governments intervene to promote equity, and reduce inequality by imposing taxes: tax the rich more heavily and give additional money to the poor (a progressive tax system designed in such a way that the rich pay a higher percent in income taxes than the poor (> Redistribution)).

Must be careful > An extremely high degree of redistribution, with very high taxes on the rich, would be likely to discourage work and entrepreneurship.

The government also provides social service and support to people in need (to people with disability, single parent families, unemployed, low income workers etc.) With more social services provided and improved quality in their provision, a higher level of standard of living is achieved. These above only affect the distribution of income and do not contribute to a higher level of income.

 


 

“I hope I am clear on this one. If not, contact us on social media and we will do our best to help you.

Thank you for reading my articles and watching my videos.”

Marios Kyriakou

References:
Ιωάννου-Σεργίου Μ., Μάτση Μ., Σάββα Ν., Σταύρου-Παπαδοπούλου Λ., Οικονομικά Α’ Λυκείου, Α΄ Έκδοση 2016. Υπηρεσία Ανάπτυξης Προγραμμάτων, Κύπρος.
Βλαδιμήρου-Παναγιώτου Β. και Κουζαλή-Σωτηρίου Ε., Οικονομικά Β’ Λυκείου, Κύπρος, Α΄ Έκδοση 2016.  Υπηρεσία Ανάπτυξης Προγραμμάτων, Κύπρος.
Βλαδιμήρου-Παναγιώτου Β. και Κουζαλή-Σωτηρίου Ε., Οικονομικά Γ’ Λυκείου, Κύπρος, Α΄ Έκδοση 2017.  Υπηρεσία Ανάπτυξης Προγραμμάτων, Κύπρος.
Besanko, David Braeutigam, Ronald R. Gibbs, Michael, 2011, Microeconomics, Hoboken: John Wiley, 4th ed,
International student version
Frank, Robert H., 2010, Microeconomics and Behavior, New York: McGraw-Hill Irwin, 8th ed.
Estrin, Saul Laidler, David E. W. Dietrich, Michael ., 2008, Microeconomics, Harlow: FT/ Prentice Hall, 5th ed.

Disclaimer: This article is intended for educational purposes only and does not replace independent professional judgement. Its purpose is to act as a complementary educational service to society, promoting personal development and social, economic and cultural progress of citizens. While this content has been prepared in good faith, no representation or warranty, express or implied, is or will be made and no responsibility or liability is or will be accepted by the creator to the accuracy or completeness of the information presented or any other written or oral information made available to any interested party and any such liability is expressly disclaimed.

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