Transcript Economics-Lecture-8

24
Measuring Domestic Output and National
Income
Economics
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2
Assessing the Economy’s Performance
• National Income Accounting measures
•
LO1
economy’s overall performance
Bureau of Economic Analysis compiles
National Income and Product Accounts
• Assess health of economy
• Track long run course
• Formulate policy
24-3
Gross Domestic Product
• Measure of aggregate output
• Monetary measure
• Avoid multiple counting
• Market value final goods
LO1
24-4
Gross Domestic Product
• Exclude financial transactions
• Public transfer payments
• Private transfer payments
• Stock (and bond) market
•
LO1
transactions
Exclude second hand sales
• Sell used car to a friend
24-5
Two Approaches to GDP
• Income approach
• Count income derived from
•
LO2
production
• Wages, rental income, interest
income, profit
Expenditure approach
• Count sum of money spent buying
the final goods
• Who buys the goods?
24-6
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
LO2
G
= D=
P
+
+
+
+
Interest
Profits
Statistical
Adjustments
24-7
Expenditures Approach
• Personal consumption
expenditures (C)
• Durable consumer goods
• Nondurable consumer goods
• Consumer expenditures for
services
• Domestic plus foreign goods
produced
LO2
24-8
In economics, a durable good or a hard good is a good that does not
quickly wear out, or more specifically, one that yields utility over time
rather than being completely consumed in one use. Items
like bricks could be considered perfectly durable goods, because they
should theoretically never wear out. Highly durable goods such
as refrigerators, cars, or mobile phones usually continue to be useful
for 3 or more years of use,[1] so durable goods are typically
characterized by long periods between successive purchases.
Examples
of
consumer
durable
goods
include
automobiles,
books,
household
goods
(home
appliances, consumer electronics, furniture, tools,etc.), sports
equipment, jewelry, medical equipment, firearms, and toys.
Nondurable goods or soft goods (consumables) are the opposite of
durable goods. They may be defined either as goods that are
immediately consumed in one use or ones that have a lifespan of less
than 3 years.
A car is a durable good. The gasoline that powers it is a non-durable
good, or consumable good.
Expenditures Approach
• Gross private domestic investment (Ig)
• Machinery, equipment, and tools
• All construction
• Changes in inventories
• Creation of new capital assets
LO2
24-10
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 + Xn
LO2
24-11
Comparative GDP
LO2
24-12
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
LO2
24-13
The Income Approach
•
•
LO2
From national income to GDP
• Subtract net foreign factor income
• Statistical discrepancy(is equal to gross domestic
product less gross domestic income)
• Consumption of fixed capital
Other national accounts
• National income (NI)
• Personal income (PI)
• Disposable income (DI)(income remaining after
deduction of taxes and social security charges,
available to be spent or saved as one wishes)
24-14
Nominal vs. Real GDP
• GDP is a dollar measure of
•
•
•
production
Using dollar values creates problems
Nominal GDP
• Use current market price
Real GDP
• Reflect changes in price
•
LO3
is a macroeconomic measure of the value of
economic output adjusted for price changes (i.e.,
inflation or deflation).
24-15
Shortcomings of GDP
• Nonmarket activities
• Leisure (use of free time for enjoyment.)
• Improved product quality
• The underground economy
• GDP and the environment
• Composition and distribution of the
•
LO4
output
Noneconomic sources of well-being
24-16
Questions?
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