Transcript Document

Chapter 25
Measuring Domestic Output and National Income
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Assessing the Economy’s Performance
• 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
25-2
LO1
Gross Domestic Product
• Measure of aggregate output
• Monetary measure
• Avoid multiple counting
• Market value final goods
• Ignore intermediate goods
• Count value added
25-3
LO1
Gross Domestic Product
(1)
Stage of Production
(2)
Sales Value
Of Materials
Or Product
$
(3)
Value
Added
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
Value Added (total income)
]--------$120 (= $120 - $ 0)
]-------- 60 (= 180 - 120)
]-------- 40 (= 220 - 180)
]-------- 50 (= 270- 220)
]-------- 80 (= 350 – 270)
$1140
$350
25-4
LO1
Gross Domestic Product
• Exclude financial transactions
• Public transfer payments
• Private transfer payments
• Stock market transactions
• Exclude second hand sales
• Sell used car to a friend
25-5
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?
25-6
LO1
Two Approaches to GDP
Expenditures or Output
Approach
Income or
Allocations Approach
Consumption by
Households
Wages
Investment by
Businesses
Rents
+
+
+
Government
Purchases
Expenditures
By Foreigners
LO1
G
=D=
P
+
+
+
+
Interest
Profits
Statistical
Adjustments
25-7
Expenditures Approach
• Personal consumption expenditures (C)
• Durable goods
• Nondurable goods
• Consumer expenditures for services
• Domestic plus foreign goods produced
25-8
LO2
Expenditures Approach
• Gross private domestic investment (Ig)
• Machinery, equipment, and tools
• All construction
• Positive and negative changes in inventories
• Creation of new capital assets
• Noninvestment transactions excluded
25-9
LO2
Expenditures Approach
=
Gross Investment
Depreciation
Net Investment
Gross
Investment
Net
Investment
Depreciation
Stock
Stock of
Capital
January 1
LO2
Consumption,
government
expenditures,
and net exports
of
Capital
Year’s GDP
December 31
25-10
Expenditures Approach
LO2
• 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 (X) – imports (M)
• GDP = C + Ig + G + Xn
25-11
Accounting Statement for
the U.S. Economy, 2012 (in Billions)
LO2
25-12
Comparative GDP
25-13
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 imports
LO3
25-14
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)
LO3
25-15
U.S. Income Relationships 2012
25-16
LO4
Circular Flow Revisited
25-17
LO4
Nominal GDP vs. Real GDP
• GDP is a dollar measure of production
• Using dollar values creates problems
• Nominal GDP
• Based on prices that prevailed when output
was produced
• Real GDP
• Reflect changes in the price level
• Use base year price
25-18
LO5
GDP Price Index
• Use price index to determine real GDP
Price
Index
In Given
Year
Real
GDP
=
=
Price of Market Basket
In Specific Year
Price of Same Basket
In Base Year
x 100
Nominal GDP
Price Index (in hundredths)
25-19
LO5
GDP Price Index
• Calculating Real GDP (Base Year = Year 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)
1
5
$10
100
$ 50
$50
2
7
20
200
140
70
3
8
25
250
200
80
4
10
30
---
---
---
5
11
28
---
---
---
(5)
Adjusted,
or
Real, GDP
25-20
LO5
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
25-21
LO6
Underground Economy
25-22
LO6
Sources of BEA Data
• Consumption
• Census Bureau’s Retail Trade Survey
• Census Bureau’s Survey of Manufacturers
• Census Bureau’s Service Survey
• Industry Trade Sources
25-23
Sources of BEA Data
• Investment
• All consumption data sources
• Census Bureau’s Housing Starts Survey and
Housing Sales Survey
• Retail Trade Survey
• Wholesale Trade Survey
• Survey of Manufacturing
25-24
Sources of BEA Data
• Government Purchases
• Office of Personnel Management
• Construction Surveys
• Census Bureau’s Survey of Government
Finance
• Net Exports
• U.S. Customs Service
• BEA Surveys and Analysis
25-25