National Income, Output and Employment
This section covers national income accounting, the circular flow, multipliers and unemployment, which the exam tests through definitions, calculations and policy links. You need to distinguish GDP from GNP and nominal from real values.
Core rules
- GDP is the market value of final goods and services produced within a country in a period. GNP adds net factor income from abroad.
- Expenditure approach: GDP = C + I + G + (X - M). Intermediate goods and transfer payments are excluded.
- Nominal GDP uses current prices; real GDP uses constant prices and measures output change. GDP per capita = GDP ÷ population.
- Injections are investment, government spending and exports. Leakages are saving, taxes and imports. Equilibrium occurs when injections equal leakages.
- The multiplier = 1 ÷ (1 - MPC) = 1 ÷ MPS. A change in autonomous spending changes income by the multiplier.
- Unemployment types: frictional, structural, cyclical and seasonal. Full employment allows for frictional unemployment.
Worked example
MPC = 0.8, so the multiplier = 1 ÷ (1 - 0.8) = 5. If investment rises by 100 million kyat, equilibrium income rises by 5 × 100 = 500 million kyat, assuming spare capacity and unchanged prices. If nominal GDP rises by 10% while prices rise by 6%, real GDP rises by approximately 4% (10 - 6), not 10%.
Traps
Do not count transfer payments or intermediate goods in GDP; do not confuse nominal and real growth; do not say all unemployment is zero at full employment; do not use the multiplier if the economy is at full capacity.