TASK 2
( Resume Chapter 4 )
1. National Income
1.1. Definition of National
Income
National
income is the
amount of income received by all family households in a state of submission of
factors of production in one period, usually one year. National income is one
indicator that can be used to measure the pace of development and prosperity of
a country-level developments from time to time. In addition to the national
income, can know the direction and structure of the economy of a country.
1.2. How to Calculate
National Income
There are 3 ways / methods / approaches in calculating national income, is as follows :
A. Production
Approach Method
Production approach is value
added created in the production process.
This method for calculating the national income by adding up the value-added is realized by companies in various fields of business in the economy.
Production approach represents revenue from the multiple factors of production to produce something. The production value of a sector illustrates the added value realized by such a sector.
There are 9 sector or business fields that are divided into three groups, as follows :
a) Primary Sector
· agriculture, livestock, forestry, and fisheries.
· mining and excavation.
b)Secondary Sector
· Processing industry.
· Electricity, water, and gas.
· Building
c) Tertiary Sector
· Trade, hotels, and restaurant.
· Telecommunications and transport
· Miscellanous services
Production approach can be formulated as follows :
Y = (PXQ)1 + (PXQ)2 +.....(PXQ)n
inf : Y = National Income
P = Price
Q = Quantity
According to this method, GDP is the total output (production) produced by an economy. How it is calculated in practice is to divide the economy into sectors of production (industrial origin). Total output of each sector is the amount of output across the economy. However, there is a possibility that the output produced by a sector of the economy is derived from the output of other sectors. Or it could be an input for other sectors of the economy again. In other words, if it is not careful there will be double counting (double counting) or even multiple counting. As a result, the GDP figures could ballooned several times higher than the actual figures. To avoid this, then in the calculation of GDP by production method, which is summed value added (value added) in each sector.
B. Income Approach Method
Income approach is an approach in which national income is obtained by summing the incomes of various factors of production that contributes to the production process.
Method income approach is the national income of the sum of all revenues received by the owners of factors of production in a country in one year.
This approach leads to the acceptance of the use of production factors. Factors of production consists of labor, capital, land, dn skills / entrepreneurship. Each of these factors of production will generate revenues that vary, the workforce will get the salary / wages, capital pemilikn will earn interest, the land owner will acquire the lease, and vocational skills will earn a profit.
a) Compensation / Wages for Workers
Workers receive wages and salaries as well as other revenues, such as the provision of retirement benefits, social security, and other revenues.
b) Profit / Profit Companies
The revenue generated by the company in managing its resources
c) Individual Business Income
The revenues received from the use of labor and results of operations of the puppets, like farmers.
d) Rental Income
Remuneration is produced on the owners of the resources used for economic activities.
e) Bank Interest
Net interest paid by companies reduced by the interest the money earned by the company, plus the net received from abroad.
National income based on the income approach can be formulated as follows :
Y = R + W + I + P
inf : Y = National Income I = Interest
R = Rent P = Profit
W = Wages
Income method regards the value of economic output as the total value of remuneration for the factors of production used in the production process. The ability of the entrepreneur is the ability and courage to combine labor, capital goods, and money to produce goods and services needed by society. Remuneration for labor is wages or salary. For capital goods is rental income. For the owner of the money / financial assets is interest income. As for employers is an advantage. Total remuneration of all factors of production called National Income.
C. Expenditure Approach Method
The national income accounts by using the expenditure approach is done by summing all the expenditure of various sectors of the economy, namely households, firms, governments, and communities abroad of a country in a given period.
Type of expenditure of an individual economic actors consists of spending on consumption (C), spending on investment (I), the expenditure for the government (G), exports (X) and imports (M).
Expenditure approach can be formulated as follows :
Y = C + I + G + (X - M)
inf : Y = National Income X = Exports
C = Consumption Society M = Imports
I = Investment
G = Government Expenditure
According to the expenditure method, GDP is the total value in the economy during a given period. According to this method there are several types of aggregates in an economy:
1) Consumption of Households (Household Consumption)
Household sector spending was used for final consumption, whether the goods and services that run out within a year or less (durable goods) as well as items that can be used for more than one year / durable goods (non-durable goods).
2) Consumption Government (Government Consumption)
Included in the calculation of government consumption expenditures of government is used to purchase final goods and services (government expenditure). While expenditures for social benefits are not included in the calculation of government consumption.
3) Investment Expenditure (Investment Expenditure)
Gross Domestic Fixed Capital Formation is a business sector expenditure. Gross Domestic Fixed Capital Formation is included in the change in stock, either in the form of finished goods and semi-finished goods.
4) Net Exports
What is meant by net exports is the difference between the value of exports to imports. Positive net exports show that exports larger than some imports. Calculation of net exports do when the economy entered into transactions with other economies (the world).
1.3. Components of National Income
a)
Gross
Domestic Product
Gross Domestic Product is the total value of all goods and services produced by a country in a given period or a year, including goods and services produced by a company owned by the state's residents and by residents of other countries who live in the country concerned.
b) Gross National Product
Gross National Product is the total value of goods and services produced by a society of a country during a given period whether they live in the country and abroad.
c) Net National Product
Net National Product is gross national product minus depreciation of capital goods replacement in the production process.
d) Net National Income
Net National Income is net national product minus indirect taxes and plus subsidies.
e) Personal Income
Personal Income is the total number of receipts that actually reached the hands of public.
Written in the formula PI = NNI = transfer payments - (retained earnings + insurance fee + tax + social security contributions of individuals)
f) After-Tax Income / Disposable Income
Disposable Income is personal income after deducting the income tax.
The formula disposable income = personal income - income tax
g) Gross Regional Domestic Product
Gross Regional Domestic Product is the sum total of the gross value added were successfully created by all economic activities that are in the region during a given period
1.4. Learn The Benefits of National Income
In determining a country's national income, the calculation is relatively hard to say right or accurate, because it is influenced by the statistics compiled annually. Although it can not be precise in its calculations, but it remains as one of the benchmarks to demonstrate the economic success of a country. The benefits of studying national income are as follows :
1) To determine the structure of the economy of a country, whether agricultural, industrial, or other.
2) To determine the economic progress or economic development from year to year, whether the progress, setbacks, or fixed.
3) To determine the level of prosperity of society when compared with the total population, which is about the per capita income.
4) To compare between countries in the world economy.
5) As a guideline for the government to adopt policies relating to national economic development planning.
6) To determine the use of public revenue.
7) As a guideline for implementing development.
Calculation of national income (GNI) is made by a country can determine the level of economic growth in the country. And by observing the rate of economic growth of a country can assess progress in controlling the country's economic activities, in both the short and long term. Thus the most good yardstick to show the prosperity of a country is to determine the Gross National Income (GNI) real.
2. Clasic Economic and
Modern Economic
2.1. Definition of Clasic
Economic
The economic system is an economic system run together for the common good (democratic), in accordance with the procedures used by our ancestors before. In this system all the goods and services needed, fulfilled by the community itself. The government's task is limited to providing protection in the form of defense, and maintain public order. In other words, economic activity that is the problem of what and how much, how and to whom the goods produced are all governed by the community.
In general, the
economic system is applicable to countries that have not developed, and began
to be abandoned. For example Ethiopia. But in general, the economic system is
very primitive and almost nothing else in the world.
2.2.
Definition of Modern Economic
This
economic system is independent. Independent does not mean isolation, because in
conjunction with other economies, the modern economy has advantages that make
it have the power to bargain ( "bargaining position") in a relationship
of interdependence between economies.
2.3. Economic Comparison of Classical
and Modern Economy
Classical
economic problems are economic problems that include the distribution of
production and consumption activities. whereas modern economic problems are
economic problems that are divided into what goods will be produced (what), how
the goods they will be produced (how), and to whom the goods produced (for
what).
A.
Clasic
Economic
According to the theory of economics kiasik, principal economic problems of society can be classified into three key issues, namely the problem of production, distribution problems, and the problem of consumption.
a)
Production problems
To achieve prosperity, goods should
be available in the community. Because the community is very heterogeneous,
then the goods Tersediapun various kinds so that it appears a problem for
producers, ie any item that must be produced. The emergence of these questions
above is not because heterogeneous society. Thus, certainly cause problems for
producers and raises concerns when producing a particular good, but not
consumed by the public.
b) Distribution
issues
In order for the goods / services
that have been produced can be up to the right people, facilities and
infrastructure needed good distribution. Examples, and garden crops need
conveyances supported good road infrastructure in order to harvest quickly to
consumer and does not accumulate in the manufacturer.
c) Problems
consumption
The production of which has been
distributed to the public can ideally be used or consumed by the public right
and used to meet the precise needs anyway. The issue is whether the goods will
be consumed right by the people who really need it or become useless because it
is not affordable by the community so that the consumer does not run properly
B. Modern Economic
Experts agree that a modern economy with the resources
available, there are at least three main issues facing every economy and must
be solved by masyaralcat as the subject of economics.
a) Goods
and Services What will Manufactured and How Much? (What and How Much?)
Given that the limited resources available production and
use of alternative nature, then society must determine the type and quantity of
goods and services to be produced. Communities can choose one or several types
of goods and services to be produced with a certain ratio. Choices made by the
people is certainly considered the most profitable and provide the greatest
benefits for the community to meet the needs.
Could have been a particular country does not produce
weapons, nuclear missile or even a computer. On the other hand many producing
foodstuffs such as rice, wheat, vegetables, and fruits. Then and which weapons
to the armed forces? With their international trade activities will need
weapons can be met by buying and producing nations such weapons.
b) How
to Produce? (How?)
This question is regarding production techniques are
applied and the ability to combine the factors of production or dayayang source
is in the process of the product. With limited economic resources available
producers should be able to create an efficient teknikproduksi. To that end,
advances in science and technology production should be increased.
c) For
Whom Produced Goods or services? (For Whom?)
This question is a matter for society who or which enjoy
the goods and services produced. Is every citizen inherit the same or
different?
Whether the goods / services only for the wealthy? Is the
national income has been distributed fairly? Should the salaries of managers
and workers tenfold? Is cheap car project be implemented to enable low-income
residents to consume? All of these questions regarding to whom the goods /
services produced.
These three issues above are what, how and for Whom are
fundamental and are latch-hook with each other as well as selaludihadapi by
each country, both developing countries and developed countries. However, not
all economies can solve these three problems in the same way.
3. The Impact of Taxes on Economy
3.1. Definition of Tax
In the income of a country, the tax
is a major source of income / principal. Understanding the tax will be related
to problems aan explained thus only tax functions, with the conviction that
sense covers the main points contained therein.
3.2. Interest Taxation
To suppress consumption and
investment of the system of social activities so that the administrative system
can provide public goods and services, social or collective and could provide
subsidies to the poor without causing inflation and difficulties in balance of
payments.
3.3. Effects of Taxation In The Economy
A. influence
on Production
The effect on the production
influence through work, savings, and investment. Maksutnya the desire to work,
save, and invest.
B. Against
the overall production
The tax effect on the overall
production through its influence on work, saving, and investment. If the
investments can be put to good use, will make a more productive job retention.
Savings da investments tidk bias sometimes together, sometimes bigger
investment or otherwise. Then the impact will occur unemployment.
C. Effect
Against Tax Composition of Production
Taxes can also cause divergence
factors of production, mainly used for unintended benefits. Should be able to
generate a lot of production, but on the contrary that generate production far
less. How far the effect of taxation on the transfer of the use of factors of
production towards activities that are subject to taxation to other activities,
as well as how much the amount of production of goods produced in activities
that made the object of the tax would be reduced will depend on a high low
demand and supply on the goods produced by them.
D. Effect
Against Tax Income Distribution
The purpose of development of a
country is in the form of an increase in national income per capita, employment
creation, income distribution more equitable and balance of international
payments. But often these goals are not aligned, and the cause should reduce one
another to achieve this goal. There is often to achieve an uneven distribution.
macroeconomic theory, argued that the higher the level of income the lower the
desire to hold income consumption.
It is expected that the wealthy are
able to form a savings and investment if held then held a more equitable
distribution of income, then this would mean lowering the level of public
savings which means that the pattern reduces the funds available for
investment. In other words, the poor do not have the ability to mengadakn
savings and investment.
3.4. Personal Taxes Tax
(Individual)
Poll tax is a tax levied on a person
without considering the amount of their income, savings or expenses. This tax
can be imposed in an amount equal to everyone, or may apply to a particular
group of people based on certain criteria. Examples are marital status, age,
etc.
A. Effect
of Individual Tax on Consumption An Item
Suppose the tax to be paid by every
person in the same amount, and then analyzed the tax effects on a person's income.
If someone is using all of its income to buy an item it will get as many items
0D, and if it is not in use are all going to gain much stuff as C0.
B.
Effect Against Individual Consumption
Expenditure Taxes and Savings
In
this case we assume that if a depositor for the purpose of consumption at a
time to come. Income someone can be divided into two for savings or for
consumption. This is a consideration for someone to save his earnings or used
for consumption.
C. Effect
of Individual Tax Election Forms of
Savings
For example, someone does not like
risk, because the people are only willing to hold most of his savings in the
form of savings at risk, only if it receives the results are great. The greater
the expected results, the greater will be someone willing to take the risk.
D. Effect
of Individual Taxes Labor Against Offer
Personal taxes in the form of levies
that amount has been determined cause income received must be used in part to
pay taxes in the same amount and the amount does not depend on the length of
work. Even the person must still pay personal taxes even though he did not work
at all. Someone who must pay personal taxes caused him to work longer than
before tax.
E. Income
Tax Effect Against Labor Deals
Income taxes in addition have the
effect of income (income effect), also has the effect of substitution
(substitution effect). Causing their income tax revenue received by a person
had to be reduced to pay taxes. Because someone who worked more attention than
the net income in gross revenue, the substitution effect shows the attitude of
someone who reduce their working hours.
4. Consumption
4.1. Definition of
Consumption
Consumption is major concept in economics and is also studied by many other social
sciences. Economists are particularly interested in the relationship between
consumption and income, as modeled with the consumption function.
Different schools of economists define production and consumption differently. According to mainstream economists, only the final purchase of goods and services by individuals constitutes consumption,
while other types of expenditure — in particular, fixed
investment, intermediate consumption, and government spending — are placed in
separate categories (See consumer
choice). Other economists
define consumption much more broadly, as the aggregate of all economic activity
that does not entail the design, production and marketing of goods and services (e.g. the selection, adoption, use, disposal
and recycling of goods and services).
4.2. Consumption function
The
consumption function is a mathematical function that expresses consumer
spending in terms of its determinants, such as income
and accumulated wealth.
4.3. Behavioural Economics
and Consumption
The Keynesian consumption function is also known as the absolute income hypothesis, as it only bases consumption on current
income and ignores potential future income (or lack of). Criticism of this
assumption led to the development of Milton
Friedman's permanent income hypothesis and Franco
Modigliani's life cycle hypothesis. More recent theoretical approaches are
based on behavioral economics and suggest that a number of behavioural
principles can be taken as microeconomic foundations for a behaviourally-based
aggregate consumption function.
4.4. Consumption and Household Production
Consumption is defined in part by
comparison to production. In the tradition of the Columbia
School of Household Economics, also known as the New Home Economics, commercial consumption has to be
analyzed in the context of household production. The opportunity cost of time
affects the cost of home-produced substitutes and therefore demand for
commercial goods and services.[2][3] The
elasticity of demand for consumption goods is also a function of who performs
chores in households and how their spouses compensate them for opportunity
costs of home production.
Different schools of economists define
production and consumption differently. According
to mainstream economists, only the final purchase of goods and services by individuals constitutes
consumption, while other types of expenditure — in particular, fixed investment,
intermediate consumption, and government spending — are placed
in separate categories (See consumer choice).
Other economists define consumption much more broadly, as the aggregate of all
economic activity that does not entail the design, production and marketing of goods and services.
Consumption
can also be measured by a variety of different ways such as energy in energy economics
metrics.
4.5. Effect of Consumption
Aggregate consumption is a component of aggregate
demand. According to the
UN, "today’s consumption is undermining the environmental resource base.
It is exacerbating inequalities. And the dynamics of the consumption-poverty-inequality-environment nexus are
accelerating. If the trends continue without change — not redistributing from high-income to low-income consumers, not shifting from polluting to cleaner goods and production
technologies, not shifting priority from consumption for conspicuous display to
meeting basic needs — today’s problems of consumption and human development will
worsen." Developing countries like India, as they move down the path of
copying the consumption patterns of developed economies, will basically create
demands that earth will not be able to fulfill. Some economists talk about
putting a price on using earth's resources which is in addition to the cost of just
extracting them.
5.
Investment Theory
5.1.
Definition of Investment
Investment is the decision to
postpone the consumption of resources or of income in order to enhance the
capability, add / create the value of life (income and wealth). Investments not
only in physical form, but also non-physical, particularly improving the
quality of human resources.
In macroeconomic theory covered are
physical investment. With such restrictions, the definition of investment can
be sharpened as expenditures increase the stock of capital goods. Stock capital
is the amount of capital in an economy at a given moment.
A. Investment
in the Form of Capital Goods and Building
Which is included in investment in
capital goods and buildings are expenditures for the purchase of plant,
machinery, equipment production, building / new building. Because the
durability madal and buildings are generally more than a year, this investment
is often referred to as investment in fixed assets (fixed investment).
In
Indonesia, which is equivalent to a fixed term investment is gross domestic
fixed capital formation (PMTDB). To be more accurate, the amount of investment
to note is that PMTDB net investment less depreciation.
B. Inventory
investment
Companies often produce goods more
than the sales target. This is done to anticipate the various possibilities. Of
course, inventory investment is expected to increase earnings / profits.
Inventories of goods may be regarded as an investment that is planned or
desired investment as planned. In addition to finished goods, investments may
also dilakukuan in inventory of raw and semi-finished goods.
5.2. Investment Criteria
A. Payback Period
The payback period is the time needed for planned investment can be returned, or the time required to reach the breakeven point. If the shorter the time required, the proposal is considered the better investment. Nevertheless, we must be careful interpreting these criteria payback period. Because no new investment over the long term (> 5 years).
B. Benefit / Cost Ratio (B / C Ratio)
B / C ratio measures which are greater than the costs incurred results (output) obtained. Costs incurred denoted by C (cost). The resulting output is denoted by B (benefit). The decision to accept or reject an investment proposal can be done by looking at the B / C. Generally, the new investment proposal is accepted if the B / C> 1, because it means the output generated is greater than the costs incurred.
C. Net Present Value (NPV)
Calculations using nominal values can be misleading, because it does not account for the time value of money. To make the results more accurate, then the present value discounted. The advantage of using the discount method is that we can directly calculate the difference between the present value of the total cost of the total net receipts.
The difference is called net present value. An investment proposal will be accepted if the NPV> 0, because the present value of the total revenue is greater than the present value of the total cost.
D. Internal Rate of Return (IRR)
Internal rate of return is the value of the return on investment, calculated at the time the NPV equal to zero. The decision to accept / reject an investment plan based on the results of the comparison made IRR with the desired rate of investment return (r).
6. Savings
6.1. Definition of Savings
Savings is a savings of a third
party may only be withdrawn under certain conditions agreed upon, but it can
not be withdrawn by check, bank draft or other tool can be equated with it. In
addition, savings are also often defined as an income people who are not in
spend, and only kept as a reserve that is used to keep watch in the short term.
Savings is part of the income that
is not consumed. So be saved and will be used in the future. Income is the
primary factor important to determine consumption and savings. In the banking
practice in Indonesia today there are several types of savings.
National savings (national saving)
can be defined as the total income in the economy that remains after used for
government spending and consumption. In some countries, domestic investment can
be financed by national savings and borrowing from abroad. Total funds
available to finance investment (I) is equal to national savings (S + (T-G))
coupled with borrowing from abroad (X-M). mathematically formulated:
I = S + (T-G) + (X-M)
However,
to reduce the dependence of a country on the help of others, national savings
as a preferred source of financing domestic investment. Broadly speaking, the
national savings created by three actors, namely governments, companies and
households.
Government savings is the difference
between actual revenues to government spending. Saving the company represents
the excess of revenue (income) that are not distributed to shareholders whose
magnitude can be seen from the balance sheet of the company. While household
savings are part of earned income households that do not dibelanjakanuntuk
consumption purposes. Mathematically the equation savings can be described as
follows:
If private saving is S = (Y-T) - C and
Government savings are (T-G), then
National savings = S + (T-G) = (Y-T)
- C + (T-G) = Y - C - G
where
: S is the private saving C
is consumption
Y is the aggregate income G is government spending
T is the income tax net
If
the T-G is positive, then the government will have a budget surplus, and the
sector will be added to the private sector to increase investment funding
source. But if T-G negative value means that the government runs a budget
deficit, and the government had to borrow funds from other parties.
6.2. Consumption Function and
Saving
Keynesian consumption function is a
function of short-term consumption. Keynes did not issue long-term consumption
function because according to Keynes "in the long run we're all
dead.", That in the long run, we are all going to die, so the long-term
need not be predicted. Keynesian consumption function can be explained as
follows :
Keynesian
consumption function is: C = a + c Yd
Where
:
c
= marginal propensity to Consume (MPC) 0 <MPC <1
a
= constant or autonomous consumption
Yd
= Disposable income or income are ready to eat
Yd
= Y - Tx + Tr
Tx
= Taxes
Tr
= Subsidies
REFERENCES
