27 McGraw-Hill/IrwinCopyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved....
-
Upload
angela-haynes -
Category
Documents
-
view
215 -
download
1
Transcript of 27 McGraw-Hill/IrwinCopyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved....
27
McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
Measuring Domestic Output and National Income
• National Income Accounting measures economy’s overall performance
• Bureau of Economic Analysis compiles National Income and Product Accounts
• Assess health of economy
• Track long run course
• Formulate policy
Assessing the Economy’s Performance
LO1
Gross Domestic Product
• Measure of aggregate output
• Monetary measure
• Avoid multiple counting
• Market value final goods
• Ignore intermediate goods
• Count value added
LO1
Gross Domestic Product
(1)
Stage of Production
(2)
Sales Value
Of Materials
Or Product$ 0
Firm A, sheep ranch 120
Firm B, wool producer 180
Firm C, coat manufacturer 220
Firm D, clothing manufacturer 270
Firm E, retail clothier 350
Total Sales Value $1140
Value Added (total income)
(3)
Value
Added
]--------$120 (= $120 - $ 0)
]-------- 60 (= 180 - 120)
]-------- 40 (= 220 - 180)
]-------- 50 (= 270- 220)
]-------- 80 (= 350 – 270)
$350
LO1
Gross Domestic Product
• Exclude financial transactions
• Public transfer payments
• Private transfer payments
• Stock (and bond) market transactions
• Exclude second hand sales
• Sell used car to a friend
LO1
Two Approaches to GDP
• Income approach
• Count income derived from production
• Wages, rental income, interest income, profit
• Expenditure approach
• Count sum of money spent buying the final goods
• Who buys the goods?LO2
GDP
= =
+Consumption by
Households
Investment byBusinesses
GovernmentPurchases
ExpendituresBy Foreigners
+
+
+++
Wages
Rents
Interest
Profits
StatisticalAdjustments
+
Two Approaches to GDPExpenditures or
Output ApproachIncome or
Allocations Approach
LO2
Expenditures Approach
• Personal consumption expenditures (C)
• Durable consumer goods
• Nondurable consumer goods
• Consumer expenditures for services
• Domestic plus foreign goods produced
LO2
Expenditures Approach
• Gross private domestic investment (Ig)
• Machinery, equipment, and tools
• All construction
• Changes in inventories
• Creation of new capital assets
• Noninvestment transactions excluded
LO2
Expenditures Approach
January 1 Year’s GDP December 31
Consumption& Government
Spending
Depreciation
NetInvestment
GrossInvestment
Stock ofCapital
Increase
Stock ofCapital
Gross InvestmentDepreciationNet Investment
-=
LO2
Expenditures Approach
• Government purchases (G)• Expenditures for goods and services
• Expenditures for publicly owned capital
• Excludes transfer payments
• Net exports (Xn)
• Add exported goods
• Subtract imported goods
• Xn = exports – imports
• GDP = C + Ig + G + XnLO2
Compensation
Rents
Interest
Proprietor’s Income
Corporate Profits
Taxes on Production and
Imports
National Income
Net Foreign Factor Income (-)
Statistical Discrepancy (+)
Consumption of Fixed
Capital (+)
Gross Domestic Product
$ 7792
268
788
1041
1309
1090
$12,288
105
209
1864
$ 14,256
Personal Consumption (C)
Gross Private Domestic
Investment (Ig)
Government Purchases (G)
Net Exports (Xn)
Gross Domestic Product
In Billions ReceiptsExpenditures Approach
AllocationsIncome Approach
$10,089
1628
2931
-392
$ 14,256
U.S. Economy 2009
LO2
The Income Approach
• Compensation of employees
• Rents
• Interest
• Proprietor’s income
• Corporate profits
• Corporate income taxes
• Dividends
• Undistributed corporate profits
• Taxes on production and importsLO2
The Income Approach
• From national income to GDP
• Subtract net foreign factor income
• Statistical discrepancy
• Consumption of fixed capital
• Other national accounts
• Net domestic product (NDP)
• National income (NI)
• Personal income (PI)
• Disposable income (DI)LO2
U.S. Income Relationships 2009
Gross Domestic Product (GDP)Less: Consumption of Fixed CapitalEquals: Net Domestic Product (NDP)Less: Statistical DiscrepancyPlus: Net Foreign Factor IncomeEquals: National Income (NI)Less: Taxes on Production and ImportsLess: Social Security ContributionsLess: Corporate Income TaxesLess: Undistributed Corporate ProfitsPlus: Transfer PaymentsEquals: Personal Income (PI)Less: Personal TaxesEquals: Disposable Income (DI)
$ 14,2561864
$ 12,392209105
$ 12,2881090
967315418
2528$ 12,026
1102$ 10,924
LO2
Nominal vs. Real GDP
• GDP is a dollar measure of production
• Using dollar values creates problems
• Nominal GDP
• Use prevailing price
• Real GDP
• Reflect changes in price
• Use base year price
LO3
GDP Price Index
• Use price index to determine real GDP
PriceIndexIn GivenYear
= x100Price of Market Basket
In Specific Year
Price of Same BasketIn Base Year
RealGDP =
Nominal GDP
Price Index (in hundredths)
LO3
GDP Price Index
• Calculating Real GDP (Base Year = Yr 1)
Year
(1)
Units of
Output
(2)
Price of
Pizza
Per Unit
(3)
Price Index
(Year 1 = 100)
(4) Unadjusted, or Nominal,
GDP
(1) X (2)
(5)
Adjusted, or
Real, GDP
1 5 $10 100 $ 50 $50
2 7 20 200 140 70
3 8 25 250 200 80
4 10 30 --- --- ---
5 11 28 --- --- ---
LO3
Shortcomings of GDP
• Nonmarket activities
• Leisure
• Improved product quality
• The underground economy
• GDP and the environment
• Composition and distribution of the output
• Noneconomic sources of well-being
LO4
Sources of BEA Data
• Consumption
• The U.S. Census Bureau’s Retail Trade Survey
• The U.S. Census Bureau’s Survey of Manufacturers
• The U.S. Census Bureau’s Service Survey
• Industry Trade Sources
LO4
Sources of BEA Data
• Investment
• All consumption data sources
• The U.S. Census Bureau’s Housing Starts Survey and Housing Sales Survey
• Retail Trade Survey
• Wholesale Trade Survey
• Survey of Manufacturing
LO4