Economic Performance GDP
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Transcript Economic Performance GDP
Chevalier
Fall 2015
ECONOMIC PERFORMANCE
GDP (GROSS DOMESTIC PRODUCT)
The dollar amount of all final goods and
services produced within a country’s national
borders in a year
Toyotas
made in Kentucky
Fords made in Mexico
The single most important measure of the
economy’s overall economic performance
GDP
How is this all figured out:
National
System
income accounting
of statistics and accounts that keep track of
production, consumption, saving and investment
All done to TRACK ECONOMIC PERFORMANCE
Department of Commerce
COMPUTING GDP
Not conceptually difficult
Look at figure 13.1 on page 342
Certain things not counted in GDP
Secondhand
sales
Intermediate products (tires on new car)
Underground economy (Black Market)
LIMITATIONS
Composition of output (we’re not sure what is
being produced, could be good, could be bad)
Quality of life not measured with increase in
GDP
STILL THE MAJOR MEASURE OF ECON. HEALTH
Political implications
Voluntary transactions- happens when both
parties feel they will be better off
GNP (GROSS NATIONAL PRODUCT)- THE
MEASUREMENT OF NATIONAL INCOME
Derived from GDP
Measures income of Americans instead of output,
whether goods and services are produced in the US or
other countries
By
definition: the dollar value of all final goods, services, and
structures produced in one year with labor and property
supplied by a country’s residents
GDP to GNP: add all payments that Americans receive
from outside US, then subtract all payments made to
foreign-owned resources in the US
GNP
In a closed economy, GDP would = GNP
US- GNP is smaller than GDP
US
paid out more income to factors of production
from the rest of the world than it received.
NATIONAL INCOME (PAGE 345)
Net National product
GNP minus depreciation (capital equipment that becomes worn
out over time)
National income
Income left after taxes have been paid
Business, excise, property, sales
Excludes the corporate profit tax
Personal Income
PI
Total amount of income going to consumers before indiv. Income
taxes are subtracted
NATIONAL INCOME
Disposable personal income
What
DI
is left after all taxes
GDP AND CHANGES IN THE PRICE LEVEL
Inflation-must keep track of it
So how do we figure out what GDP 15 years ago would
translate into in today’s dollar?
Index-measures
Base
price over time
year
The use of indexes
Consumer
price index-reports price changes for 80K items in
364 categories
Producer price indices- measures price changes paid my
domestic producers for their inputs (100k commodities; 1982)
Fuel, farm products, chemicals, rubber, paper,food
CHANGES IN THE PRICE LEVEL
Implicit GDP price deflator
Index
of avg. levels of prices for all goods and
services in the economy (computed quarterly,
1996)
Good
long run indicator of the price changes that
consumers face
REAL VS CURRENT GDP
Have to remove the effects of inflation
Current
or nominal GDP (not adjusted)
Real GDP or GDP in constant dollars (adjusted)
Real
GDP=GDP in current dollars/implicit GDP price
deflator X 100
1st quarter of 2003 10,688.4
billion
GDP deflator was 111.90
In other words, prices in 2003 were 111.90 percent
higher than in 1996
Calculation=9,551.7
billion
Dollar value of all goods and services produced
measured in 1996 prices
Acts as a benchmark
GDP AND POPULATION (FACTORS AFFECTING
POPULATION GROWTH
Population, growth, regional change
Demographics, fertility rate
Life expectancy, net immigration, census
ECONOMIC GROWTH
The best way to measure is GDP per capita
Importance of economic growth
Standard
of living
Enlarges the tax base
Lowers domestic problems
Increases demand for foreign products (helps other
nations)
FACTORS THAT INFLUENCE ECONOMIC GROWTH
Land, labor, capital, entrepreneur
Graph page 367