Lesson Notes By Weeks and Term - Senior Secondary 2

Term: 3^rd Term

Week: 3

Class: Senior Secondary School 2

Age: 16 years

Duration: 40 minutes of 2 periods each

Date:       

Subject:      Economics

Topic:-       Ways of measuring national income and their limitations

SPECIFIC OBJECTIVES: At the end of the lesson, pupils should be able to

1. List and explain the three methods of measuring national income
2. Calculate national income (GDP) if figures are given
3. List reasons for measuring national income
4. Identify limitations of the uses of national income estimates
5. Discuss the problems of computation of national income
6. Explain the cost of living
7. Explain the standard of living

INSTRUCTIONAL TECHNIQUES: Identification, explanation, questions and answers, demonstration, videos from source

INSTRUCTIONAL MATERIALS: Videos, loud speaker, textbook, pictures

INSTRUCTIONAL PROCEDURES

PERIOD 1-2

PRESENTATION	TEACHER’S ACTIVITY	STUDENT’S ACTIVITY
STEP 1 INTRODUCTION	The teacher reviews the previous lesson on national income	Students pay attention
STEP 2 EXPLANATION	She lists and explains the three methods of measuring national income. She performs calculations on national income. She further lists reasons for measuring national income and the limitation of the use of the national income estimates	Students pay attention and participates
STEP 3 DEMONSTRATION	She discusses the problems of computation of national income. She explains the cost and standard of living	Students pay attention and participate
STEP 4 NOTE TAKING	The teacher writes a summarized note on the board	The students copy the note in their books

 

NOTE

WAYS OF MEASURING NATIONAL INCOME AND THEIR LIMITATIONS

The most common way of measuring national income in West Africa is the Gross Domes         

Product (GDP). This is because it is difficult to calculate income or value of output      

generated by citizens abroad. National Income can be computed in three ways;     

1. Income Approach
2. Output or Net Product Approach
3. Expenditure Approach

             

INCOME APPROACH                                                                                    

This method takes account of all the incomes received by individuals, firms and the government within a year for their participation in production. The incomes received by the factors of production in form of wages or salaries, rent, interest and profits are all added together. That is,

WAGES OR SALARIES +RENT+INTEREST+PROFIT=GDP

 

OUTPUT OR NET PRODUCT APPROACH                                                   

This method sees national income in terms of the monetary value of all goods and services produced by various economic units (individuals(households), firms and the government) in a year. To avoid double-counting, income is measured on a value added basis. Value added is the value of output, less cost of inputs. Output method is also called Value added method.

 

EXPENDITURE METHOD (APPROACH)                                                      

This approach measures national income with the total expenditure on goods and services by individuals, firms and government in a country. We include only the expenditures on the final good and services. The formula used for calculating national income using thisapproach is:                                                                                                                        

Y = C+I+G+X-M+Subsidies -Taxes-Depreciation,

where                                                                                                       

Y= National Income                                                                                 

C = Private Consumption Expenditure                                                   

I = Private Investment Expenditure                                                        

G = Government Expenditure on Consumption and Investment          

 

X = Exports

 

M = Imports

 

Subsidies = Funds provided by the government to enable firms to reduce prices, and hence encourage an increase in demand and supply.

Taxes = Compulsory payments levied on individuals, firms and their properties by the government.

Depreciation (capital consumption) = Decrease in the values of capital goods as a result of use, tear and wear or obsolescence.

 

This formula can be reduced to:

 

Y = C+I, where

 

Y = National income

 

C = All expenditures on consumption of goods and services I = All expenditures on Investment goods and services

WORKED EXAMPLES

 

Calculate the national income for Nigeria if Nigeria engaged in the following economic activities in the year 2019;

Citizens’ private consumption expenditure = ₦350m,

government consumption expenditure on goods and services = ₦150m,

Private Investment Expenditure = ₦110m,

Exports income from abroad = ₦130m,

imports income paid abroad = ₦100m,

Taxes on expenditure = ₦70m,

Depreciation (capital consumption) = ₦50m,

Subsidies = ₦10m.

Expenditures	SOLUTIONS	(Values in millions)
Private consumption expenditure		= ₦350m
Government Expenditure on Consumption and Investment		= ₦150m
Private Investment Expenditure		= ₦110m
Exports income from abroad		= ₦130m
Subsidies		= ₦10m
LESS (MINUS)		₦750m
		= ₦100m
Imports income paid abroad
Taxes on expenditure		= ₦70m
Depreciation (capital consumption)		= ₦50m
National Income = ₦750m - ₦220m = ₦530m Ans		₦220m

 

       

REASONS FOR MEASURING NATIONAL INCOME                           

The following are the reasons why measurement of national income is vital in any economy:                                                                                                 

1. National income figures are used for economic planning
2. It is used to measure economic progress
3. It is used for the purpose of international comparison of standard of living
4. It provides basis for aids and technical assistance
5. It influences foreign investment

LIMITATIONS OF THE USES OF NATIONAL INCOME ESTIMATES

1. There may be different approaches to the measurement of national income
2. There are differences in priorities
3. The needs of the various countries are not the same
4. There are differences in the structure of production
5. They do not reveal the income distributions in a country
6. There are changes in the value of money
7. There are differences in the value of money

      

PROBLEMS OF COMPUTATION OF NATIONAL INCOME               

1. The existence of transfer income or payments: These are the part of the income which are given to others freely, and not as a result of their participations in the production process. Examples are gifts given to beggars and old people, pension payments, gifts to students, etc. Sometimes, some of these transfer incomes are recorded as  part  of    So  also,  identifying  transfer  incomes  may  be problematic in the sense that, it is difficult to classify any money given to a beggar when he dances as transfer income or not.                                  

2. Services not paid for: Many services are rendered to oneself or to others which are not paid for. These include; cutting one’s own hair, services rendered by children, services rendered  by  the  house  wives,  services  rendered  by  the  voluntary organizations, etc.                                                                          

3. Inadequate data: Inaccuracies and lack of data due to low literacy rate and false declarations of incomes.

4. Double-counting: This involves calculating the values of commodities twice. When an output approach is used, the cost of inputs may sometimes be recorded in addition to the value of finished product.

5. Payment in kind: Many payments are made with material objects rather than Examples, the labourers may be paid with farm produce, material gifts may be given to individuals as payments for their engagement in labour, etc.

6. Abundance of owner–occupied houses: In many parts of the world, people build their own houses and also live in those houses without tenants.

THE COST OF LIVING AND THE STANDARD OF LIVING                

COST OF LIVING                                                                                    

Cost of living can be defined as the amount of money an individual spends to obtain goods and services which will sustain him  at a particular time. It can also be referred to as the money cost of obtaining things such as foods, education, medical facilities, clothing, shelter, etc which economic agents consume. Economic agents are individuals (households), firms and government. 

The cost of living depends largely on the prices of goods and services, such that if the pricemof goods and services is very high, there will be high cost of living because too much money will be spent to buy goods and services. On the other hand, there will be low cost of living if the price of goods and services is very low, such that less will be spent to make purchases.

STANDARD OF LIVING

Standard of living be can be defined as the level of welfare attained by individuals in a country at a particular time. This level of welfare is measured in terms of the quantity and quality of goods and services consumed within a particular period of time. The higher the quantity and quality of goods and services consumed, the higher the standard of living, and vice versa. The standard of living is measured using income per head and income

distribution.

 

RELATIONSHIP BETWEEN COST OF LIVING AND STANDARD OF LIVING

 

As explained above, cost of living largely depends on the prices of goods and services and this dependence also affects the standard of living. For example, if the price of goods and services rises, there will be high cost living because people will spend much to make purchases. In the same vein, high prices that triggered high cost of living will lead to fall in demand and few goods and services will be purchased and consumed, which implies low standard of living.

 

On the other hand, if the price of goods and services falls, there will be low cost of living because people will spend less to make purchases. In the same vein, low prices that triggered low cost of living will lead to rise in demand and many goods and services will be purchased and consumed, which implies high standard of living.

 

In summary, the above reveals that the cost of living determines the standard of living, such that a fall in the cost of living increases the standard of living, while a rise in the cost of living reduces the standard of living.

 

EVALUATION:   

1. List and explain the three methods of measuring national income
2. Using figures, calculate national income (GDP)
3. List reasons for measuring national income
4. Identify limitations of the uses of national income estimates
5. Discuss the problems of computation of national income
6. Explain the cost of living
7. Explain the standard of living

8.Trace the relationship between the cost of living and the standard of living

9. Calculate Nigerians national income using the following values; citizens’ private consumption expenditure = ₦100m, government consumption          expenditure on goods and services = ₦50m, Private Investment      Expenditure = ₦80m, Exports income from abroad = ₦40m, imports income paid abroad =     ₦50m, Taxes on expenditure = ₦60m, Depreciation (capital consumption) = ₦ 10m, Subsidies = ₦5m.

CLASSWORK: As in evaluation

CONCLUSION: The teacher commends the students positively