Transcript National Income Accounting

National Income
Accounting
• The overall input and output of
a nation’s economy
• You can’t know where you’re
going if you don’t know where
you are and where you’ve been
National Income
Accounting
• Aggregate = sum total
• Gross Domestic Product [GDP] =
the aggregate of all final goods
& services “people” (consumers
& business) are able to
purchase (ready to use).
• Broadest and most important
measurement
National Income
Accounting
• GDP = goods and services
“domestically” whether American or
foreign.
• GNP = goods and services produced by
Americans worldwide
• DON’T CONFUSE THEM
• Which is the more important number?
GDP – Explained
This video from Youtube
encompasses many terms you
should understand by the time
we finish Chapter 14
GDP – Explained
Components
Consumer Spending
Business Investment
Government Spending
“NET” Exports*
* U.S. frequently runs a trade deficit
65%
15%
20%
0%
100%
Top 5 GDPs
*European Union
1
2
3
4
5
United States
China
Japan
India
Germany
* In Billions – Estimated 2010
** Source: CIA Fact Book
$14,882
$14,660
$10,090
$ 4,310
$ 4,060
$ 2,940
GDP – Explained
• GDP is expanding > Companies produce
more > Jobs are created = Inflation
“worries”
• GDP is contracting > Companies produce
less = No new jobs and potential layoffs
(high unemployment)
• Definition of Recession = Two
consecutive quarters (6 months) of
contracting GDP
GDP - Explained
• If GDP is growing too fast (inflation) –
Government policy will attempt to slow it
• If GDP is growing too slowly (or
contracting) – Government policy will
attempt to stimulate it
• Two types of Government Action: Fiscal
Policy & Monetary Policy (future lessons)
GDP – Break Down
GDP – Depreciation = NDP
NDP – Indirect Taxes = NI
NI – Direct Taxes + Transfer Payments = PI
PI – Personal Taxes (Income) = DI
GDP – Break Down
GDP (minus)
Depreciation (decrease in value
do to “wear & tear”) =
NDP – Net Domestic Product
GDP – Break Down
NDP (minus)
“Indirect” Taxes (sales, property tax,
licensing fees) =
NI – National Income (wages, salaries,
self-employed income, rentals,
corporate profits, interest earned on
investments)
• NOT “Transfer Payments – welfare,
Social Security, Medicare
GDP – Break Down
NI – National Income (minus)
corporate taxes, reinvested
profits, employer social security
contributions + Transfer
Payments =
PI – Personal Income (minus)
personal income taxes =
DI – Disposable Income
Income Approach To
Calculating GDP
• The approach we just viewed is
called the “expense” method
(money spent)
• The other approach is the
“income” method (money earned)
Income Approach To
Calculating GDP
Wages (all forms of labor income)
+
Interest (received by households)
+
Rents (received from properties)
+
Profits (earned by businesses)
=
GDP (comes out about the same as the
expense method)