Economics SS 2 Curriculum Guides – National Income and Public Finance – Elements of National Income Accounting | Elementary Treatment of Fiscal Policy | Balanced and Unbalanced Budgets

 

THEME – NATIONAL INCOME AND PUBLIC FINANCE

TOPIC 1 – ELEMENTS OF NATIONAL INCOME ACCOUNTING

 

INSTRUCTIONAL MATERIALS

Chart to illustrate components of National income.

 

 

LEARNING OBJECTIVES

By the end of the lesson, students should be able to:

1. explain the meaning of different national income components.

2. discuss different ways of measuring national income components.

3. explain the short comings of currently used national income concepts.

 

 

CONTENTS OF THE LESSON

FOCUS LESSONS 

MEANING OF NATIONAL INCOME

National income is the total income earned by all the citizens of a country as a results of their economic activities in a given years.

The income includes all the payments received all resources either in the form of wages and salaries, interest, rent, and profits.

 

COMPONENTS OF NATIONAL INCOME

1. Gross Domestic Product (GDP)

Gross Domestic Product (GDP) is the total monetary (market value) of all the finished goods and services produced within the country in a year.

GDP is used to identify it a country is experiencing economic growth and development, decreasing or stagnate.

GDP can be determined via three primary methods,

  • The Expenditure Approach
  • The Production (Output) Approach
  • The Income Approach

 

2. Gross National Products (GNP)

Gross National Product (GNP) is the total monetary value of all the final goods and services produced by the citizens residing in their own country and those in abroad.

 

3. Net National Product (NNP)

Net national product (NNP) is the total monetary value of finished goods and services produced by the citizens residing in their home country and those in abroad less depreciation.

NNP = Gross National Products – Depreciation

 

4. Personal Income

Personal Income is the total amount income earned by individual from wages and salaries, production, trading, investment enterprises, and other ventures.

 

6. Disposable Income

Disposable income is the total amount of money left to spend and save by individual after deducting income personal tax.

 

7. Cost of Living 

Cost of Living is the available cost needed for an individual to maintain a certain standard of living

 

8. Per Capita Income

Per Capita Income is an average income earned per person in a given area. It is calculated by dividing the Gross National Products (GNP) by the total population.

Per Capita Income = GNP/Total Population

 

9. Standard of Living

Standard of Living is the total amount of satisfaction enjoy by individuals or households.

 

WAYS OF MEASURING NATIONAL INCOME 

Ways of measuring national income are as follows:

The Expenditure Approach 

The expenditure approach is an approach that considers the following consumption, investment, government spending, and net exports in calculation.

This approach can be calculated using the following formula,

GDP = C + G + I + NX

where

C = consumption, G = government spending, I = investment and NX = net exports

 

The Production (Output) Approach

The Production (Output) Approach is an approach that deducts the cost of values goods and services that are used in production process from the total value of economic output.

 

The Income Approach

The Income Approach is the sum of total national income, sales taxes, depreciation and net foreign factor income.

 

NATIONAL INCOME ESTIMATE AND THEIR LIMITATIONS 

1. It fails to shows how income are distributed among the people.

2. It is not good for measuring the standard of living.

3. It fails to capture the income of the majority of self employed.

4. It does reveal the hardship of the people.

5. It is difficult to determine during inflation.

6. It reveals unreliable data.

 

USES OF LIMITATIONS OF NATIONAL INCOME ESTIMATES, TREND AND STRUCTURE OF NATIONAL INCOME

1. It is used to compare economic growth and development with other countries.

2. It is used to measure the standard of living of its citizens.

3. It is used to forecast the future.

4. It is used for economic planning.

5. It is used to predict economic situation.

6. It determines the level of foreign investment participation.

7. It reveals income distribution.

8. It estimates per capita income.

 

 

LESSON PRESENTATION

TEACHER’S ACTIVITIES

The teacher guide students to learning the ways of calculating National Income.

 

 

STUDENT’S ACTIVITIES

The students,

1. identify local economic activities that contribute to total National Income.

2. apply the concept of income determination to solve simple economics problems.

 

 

LESSON EVALUATION

Teacher asks students to,

1. explain the meaning of different national income components.

2. discuss different ways of measuring national income components.

3. explain the short comings of currently used national income concepts.

4. list and explain the components of National Income.

 

 

THEME – NATIONAL INCOME AND PUBLIC FINANCE

TOPIC 2 – ELEMENTARY TREATMENT OF FISCAL POLICY

 

INSTRUCTIONAL MATERIALS

Budget statement of any year

 

 

LEARNING OBJECTIVES

By the end of the lesson, students should be able to:

1. define public finance, explain its objectives and discuss the structure of government revenue and public expenditure by illustrating with Nigerian data.

2. distinguish between direct and indirect taxation and recurrent and capital expenditure and analyse the effects and incidence of taxes.

 

 

CONTENTS OF THE LESSON

FOCUS LESSONS 

MEANING OF PUBLIC FINANCE AND FISCAL POLICY 

Public finance is the branch of economic that accesses role of the government in the economic activities such as revenue, expenditure, debt and administration and their effects on the economy.

Fiscal policy is the use of government revenue and expenditure to control, influence, regulate or manage the economy. It is a tools used by the government to a country to promote strong and sustainable growth and development to reduce poverty.

 

OBJECTIVES OF PUBLIC FINANCE

1. It is used for resource allocation and control.

2. It is used for promoting strong and sustainable growth and development.

3. It is used to reduce the level of poverty.

4. It is used to maintain balance payments.

5. It is used for providing employment.

6. It is used for redistributing wealth equitably.

7. It is used for price control.

8. It is used to protect and defend the economy.

 

MEANING AND SOURCES OF GOVERNMENT REVENUE 

Government revenue is the income (money) received or earned by a government of a country from different sources such as taxes and non-tax sources to enable the government to discharge its duties and responsibilities to the people and defends its sovereign.

The sources of government revenue is as follows:

1. Tax

2. Rates and rents

3. Fees

4. Issuing licences

5. Surplus of the public sector units

6. Fine and penalties

7. Gifts and grants

8. Printing of paper money

9. Borrowings or loans

10. Royalties

11. Sales of natural resources and public assets

 

MEANING AND TYPES OF TAX

Tax is a compulsory contribution to state government pay by the individuals or organizations according to their income, business profits, the value of their properties, etc. to enable the government to perform their duties and responsibilities to the people.

Tax is not a penalty for any legal offence but it is a constitutional rights, duties and responsibilities of all the citizens to government of their country.

There two types of tax,

1. Direct Tax

2. Indirect Tax

 

DIRECT TAX 

A direct tax is a tax that a citizen or cooperate organization pays directly to the government.

It is imposed directly on a property, an entity, or people income.

 

ADVANTAGES OF DIRECT TAX

1. It is cheap and easy to collect.

2. The people are aware of the payment.

3. It is pay as you earn.

4. It is used to control inflation.

5. It is easy to control and manage.

6. It is fair and just the people.

 

DISADVANTAGES OF DIRECT TAX

1. It discourages hard work.

2. It reduces income and company profits.

3. It causes deflation.

4. It discourages saving.

5. It discourages investment.

6. It reduce the ability to buy goods or pay for services.

 

INDIRECT TAX 

Indirect tax is a tax that is imposed on a transaction or production of goods and services before getting to the consumers.

This type of tax is later added to the prices of goods or services.

 

ADVANTAGES OF INDIRECT TAX

1. It is convenient and easy to pay.

2. Many people are not aware.

3. It is equitable collection.

4. Tax on goods cannot be avoided.

5. Everyone is a tax payer.

 

DISADVANTAGES OF INDIRECT TAX

1. It increases the price of goods and services.

2. It favours the rich by buying in bulk.

3. The poor pays more by buying in pieces.

4. It is difficult and not easy to collect.

5. Indirect tax cannot be predicted.

6. It is affected by demand.

 

PUBLIC OR GOVERNMENT EXPENDITURE

Public or government expenditure is the total amount of money spent by the government of a country on consumption, investment, and transfer payments.

 

STRUCTURE OF PUBLIC OR GOVERNMENT EXPENDITURE 

1. Revenue Expenditure 

Revenue expenditures are short-term expenses used in running on daily government operations.

It includes the expenses required to meet the ongoing operational costs of running a government business. For example – pensions, salaries, subsidies, interest payment, utilities and rent, business travel, property taxes, etc. They are incurred in a recurring manner year after year.

 

2. Capital Expenditure 

Capital expenditures are long-term capital assets used to maintain or expand its business and generate more revenue.

They are incurred for the purpose of creating real capital assets or financial assets such as purchase of land, buildings or machinery, building schools and hospitals, government investment in shares or expenditure which reduces liabilities such as repayment of loan.

 

EFFECTS OF PUBLIC EXPENDITURE ON GOVERNMENT BUDGETS 

1.

 

LESSON PRESENTATION

TEACHER’S ACTIVITIES

The teacher,

1. illustrates discussions with Nigerian data at different stages of teaching.

2. uses demand and supply curves to analyse the incidence of taxation.

 

 

STUDENT’S ACTIVITIES

The students analyze the incidence of taxation.

 

 

LESSON EVALUATION

Teacher asks students to,

1. define public finance and mention the sources of government revenue.

2. discuss direct and indirect taxation.

 

 

THEME – NATIONAL INCOME AND PUBLIC FINANCE

TOPIC 3 – BALANCED AND UNBALANCED BUDGET

 

INSTRUCTIONAL MATERIALS

 

 

LEARNING OBJECTIVES

By the end of the lesson, students should be able to:

1. explain the concept of budget deficits budget surplus, balance budget and the component of national debt.

2. explain the concept of and criteria for revenue allocation (including resource control) in Nigeria and associated problems.

 

 

CONTENTS OF THE LESSON

FOCUS LESSONS 

MEANING OF BUDGET

Budget is an estimate of income and expenditure within or for a specified period of time.

It is prepared by a person, a household, a group of people, a business, a government, or prepared for anything else that makes and spends money.

Income is the total money generated within a specific period of time while expenditure is the total money spent within a specific period of time. Income and expenditure are used to defined the concepts of balanced and unbalanced budgets.

 

TYPES OF BUDGET

1. Balanced budget

2. Unbalanced budget

 

BALANCED BUDGET 

A balanced budget is a budget in which revenue (income) is equal to or greater than expenditure (expense).

Hint – Revenue = Expenditure or Revenue > Expenditure 

 

REASONS FOR BALANCED BUDGET 

1. Abundant human and natural resources

2. Low loan interest rate

3. High income

4. Low spending

5. Economic growth and development

6. Good government policy

 

UNBALANCED BUDGET 

An unbalanced budget is a budget in which revenue are less than expenditure.

Hint – Revenue < Expenditure 

 

REASONS FOR UNBALANCED BUDGET 

1. Overpopulation

2. Increase in spending

3. High debts

4. High loan interest rate

5. Inflation

6. Corruption

7. Slow growth and development

8. Bad government policy

 

 

MEANING OF SURPLUS AND DEFICIT BUDGET 

1. Surplus Budget 

Surplus budget is the budget that its revenues is greater the expenditures.

 

2. Deficit Budget 

Deficit budget is the budget that it revenues is less than expenditures.

 

WAYS OF FINANCING DEFICIT BUDGET 

1. Borrowing

2. Printing more currency

3. Grants from international organizations

4. Tax increase

5. Debt relief

6. Sales of unproductive assets

 

LESSON PRESENTATION

TEACHER’S ACTIVITIES

The teacher uses a budget statement to illustrate government fiscal operations.

 

 

STUDENT’S ACTIVITIES

The students list their own sources of revenue and the items they spend money on, e.g. in the previous week. This will illustrate the idea of revenue and expenditure at the individual level.

 

 

LESSON EVALUATION

Teacher asks students to,

1. differentiate between balanced and unbalanced budget.

2. explain the concept of,

  • budget deficits
  • budget surplus
  • balance budget
  • component of national debt.

3. explain five concept of and criteria for revenue allocation (including resource control) in Nigeria and associated problems.