Measurements, Part II: GDP And Real GDP

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Measurements, Part II: GDP And Real GDP. GDP (Gross Domestic Product). GDP: the total market value of all the final goods and services produced annually within a country’s borders. Final good: a good in the hands of its final user. GDP (Gross Domestic Product) (continued). - PowerPoint PPT Presentation

Transcript of Measurements, Part II: GDP And Real GDP

  • Measurements, Part II: GDP And Real GDP*

  • GDP (Gross Domestic Product)*GDP: the total market value of all the final goods and services produced annually within a countrys borders.

    Final good: a good in the hands of its final user

  • GDP (Gross Domestic Product) (continued)*Three ways to compute GDP: 1. The expenditure approach. 2. The income approach. 3. The value added approach.

  • GDP (Gross Domestic Product) (continued)*Expenditure approach: add the amount of money spent by buyers on final goods and services.

    Income approach: simply find the sum of all wages and profits.

    Value added approach: find the sum of the values added at all the stages of production.

  • What GDP Omits*Some exchanges that take place in an economy are not included in GDP. Such as:Certain nonmarket goods and services.Underground activities, both legal and illegal.Sales of used goods.Financial transactions.Government transfer payments.Leisure

  • Per Capita GDP*If we divide a countrys GDP by the population in the country, we get per capita GDP.

    Example: If a country has a GDP of $ 5 trillion and its population is 200 million, GDP per capita is $ 25000

  • The Expenditure Approach Computing GDP For A Real Word Economy*Expenditure in a real word economy: - Often talk four sectors of the economy, such as: -- household sector. -- business sector. -- government sector. -- foreign sector.

  • The Expenditure Approach Computing GDP For A Real Word Economy (continued)*The expenditures of the sectors are called, respectively: 1. Consumption (C). 2. Gross private domestic investment, or investment (I). 3. Government consumption expenditures and gross investment, or simply government purchases (G). 4. Net export (NX).

  • The Expenditure Approach Computing GDP For A Real Word Economy (continued)*Consumption (C) includes: 1. Spending on durable goods. 2. Spending on nondurable goods. 3. Spending on services

  • The Expenditure Approach Computing GDP For A Real Word Economy (continued)*Investment (I): is the sum of (1) the purchase of newly produced capital goods, (2) changes in business inventories (inventory investment), and (3) the purchases of new residential housing.

    Investment = fixed investment + inventory investment

  • The Expenditure Approach Computing GDP For A Real Word Economy (continued)*Government purchases (G): include federal, state, and local government purchases of goods and gross investment such as in highways, bridges, and so on.

    Net export (NX) NX = EX IM EX: exports IM: imports

  • The Expenditure Approach Computing GDP For A Real Word Economy (continued)*GDP = C + I + G + (EX IM)

  • The Income Approach To Computing GDP For A Real World Economy*Computing national income: - National income, is the sum of five components: 1. Compensation of employees. 2. Proprietors income. 3. Corporate profits. 4. Rental income of persons. 5. Net interest

  • The Income Approach To Computing GDP For A Real World Economy (continued)*National Income = Compensation of employees + Proprietors income + Corporate profits + Rental income + Net interest

  • The Income Approach To Computing GDP For A Real World Economy (continued)*From National Income To GDP: Making Some AdjustmentGDP = National Income Income earned from the rest of the world + Income earned by the rest of the world + Indirect business taxes + Capital consumption allowance + Statistical discrepancy

  • Other National Income Accounting Measurements*They are:1. Net Domestic Product (NDP). NDP = GDP Capital Consumption Allowance

    Capital Consumption Allowance: the estimated amount of capital goods used up in production through natural wear, obsolescence, and accidental destruction.

  • Other National Income Accounting Measurements (continued)*They are:2. Personal Income.

    Personal Income = National Income Undistributed Corporate Profits Social Insurance Taxes Corporate Profits Taxes + Transfer Payments

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