Transcript national income accounting

Eco 13/1
Macroeconomics:
The Nation’s Economy
National Income Accounting
 To determine the health of the US
economy, economists calculate the
national income accountingoverall economy’s output (production)
and its income.
Natonal Income Accounting
 5 major statistics measure the
national economy:
1. Gross domestic product
2. Net domestic product
3. National income
4. Personal income
5. Disposable personal income
Measuring Gross Domestic Product
(GDP)
 Broadest measure of the economy’s
size.
 GDP- total value of all final goods
and services produced in the US in a
single year.
 Tells the amount of goods & services
produced within the US borders and
made available for purchase that yr.
Measuring Value (GDP)
 GDP measures value of all that’s
produced, not just the amount of
items that are produced.
Measuring Final Goods and
Services (GDP)
 Economists count only final goods
and services to avoid doublecounting.
Ex: GDP doesn’t add the price of
motherboards and memory chips that
are installed for computers for sale.
Final price to the buyer already
includes them.
Measuring Final Goods and
Services (GDP)
 Only new goods are counted in GDP.
Used cars or refrigerators are not
counted.
They’re just transfers of an existing
product from one person to another.
New Battery place in a used car is
counted
Computing GDP
 Economists add expenditures in 4
categories:
1. Consumer sector (C)
2. Investment sector (I)- business
purchases.
Computing GDP
3. Government sector (G)- all
purchases by gov’ts.
4. Net exports (X)- difference between
what we sell to other countries
(exports) and what we buy from
other countries (imports).
Weaknesses of GDP
 Some workers are paid in fuel, food,
housing. GDP can only estimate the
value of those goods and services.
Net Domestic Product (NDP)
 NDP: accounts for the fact that some
production is only due to
depreciation.
Depreciation- the loss of value
because of wear and tear to durable
goods and capital goods
Durable goods- manufactured goods
with a lifespan longer than 3 years.
(Cars, refrigerators, etc.)
Net Domestic Product (NDP)
 NDP takes GDP and subtracts the
total loss in value of capital goods
caused by depreciation.
NDP= GDP – value of depreciation
Measurements of Income
Three types:
1. National income
2. Personal income
3. Disposable income
National Income (NI)
 The total amount of income earned
by everyone in the US.
National Income (NI)
 NI= the sum of all the income
resulting from 5 different areas of the
economy.
1. Wages and salaries
2. Income of the self-employed
3. Rental income
4. Corporate profits
5. Interest on savings and other
investments
Personal Income (PI)
The total income that individuals receive
before personal taxes are paid.
PI is derived from NI through 2 steps:
1. Subtract corporate income tax
2. Subtract profits that business
reinvests to grow.
3. Social security contributions
employers make.
Personal Income (PI
 We subtract these monies because
they’re not available for people to
spend.
 Transfer payments are added to
National Income (NI)
Transfer payments are welfare
payments, unemployment
compensation, Social Security,
Medicaid.
Disposable Personal Income (DI)
 Income left over after taxes, including
Social Security contributions
 DI= PI – personal taxes
 Measures the actual amount of
money people have to save and
spend.