1 / 26

Measuring Domestic Output, National Income and the Price Level

Measuring Domestic Output, National Income and the Price Level. Chapter 7 Time period = 3 weeks. Assessing the Economy. National income accounts serve a purpose just as income statements do for a business Compare conditions with other countries

hoshi
Download Presentation

Measuring Domestic Output, National Income and the Price Level

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Measuring Domestic Output, National Income and the Price Level Chapter 7 Time period = 3 weeks

  2. Assessing the Economy • National income accounts serve a purpose just as income statements do for a business • Compare conditions with other countries • Provides a basis for public policies to improve economic performance

  3. Gross Domestic Product (GDP) • GDP = the total market value of all final goods and services produced within a country in one year • Measured in quarters (every 3 months) • 1st = January - March • 2nd = April - June • 3rd = July – September • 4th = October - December

  4. GDP • Includes only final goods = g & s that are purchased for final use by the consumer • Does not include intermediate goods = g & s that are resold or go on for further processing or manufacturing • This avoids multiple counting • Is the value of what has been produced, not what was actually sold

  5. GDP Excludes Nonproduction Transactions • Existing assets or property that is sold or transferred, including used items, is NOT counted • Public or private transfer payments --public = SS or welfare payments --private = student allowance or alimony --sale of stocks and bonds --broker services rendered ARE counted

  6. More Nonproduction Transactions • Secondhand sales • Unreported business activities done in cash (ie unreported tips) • Illegal activities • “Non-market” activities like volunteering or family work • US corporation’s production in overseas plants

  7. 2 ways to look at GDPExpenditures Approach • GDP has 4 components GDP = C + Ig + G + Xn • C = Personal Consumption • durable & nondurable finished g & s (but not houses)

  8. Expenditures Approach • Ig = Gross Private Domestic Investment (Gross Investment) • Purchases of machinery, equipment & tools • Factory equipment maintenance • All construction (including residential) • Unsold inventory of products

  9. Expenditures Approach • G = Government Spending • Government purchase of resources (mainly labor) • Again, it excludes transfer payments like SS

  10. Expenditures Approach • Xn = Net Exports (exports – imports) --All spending on g & s produced in the US must be included in the GDP, whether the purchase is made here or abroad --For decades, Xn has been a negative (= trade deficit)

  11. Expenditures Approach • C + Ig + G + Xn = GDP

  12. GDP to DI • Using the expenditure approach C + Ig + G + Xn = GDP • C = about 67% of GDP • Xn = mostly negative since WWII

  13. GDP to DI • Start with GDP– consumption of fixed capital (CFC) or depreciation =now we have net domestic product (NDP) • Take NDP– indirect businesses taxes (sales, excise & property taxes, licenses, duties) Also – net foreign factor income (income earned by foreigners in the US – income earned by Americans abroad) =now we have National Income (NI)

  14. GDP to DI • Take NI and subtract - social security contribution (a tax) - corporate income taxes paid - undistributed corporate profits (total profits – corporate taxes = profits not given out as dividends but kept for reinvestment at a later date) + back transfer payments (SS payments, unemployment compensation, disability pay) Now we have Personal Income (PI)

  15. GDP to DI • Take PI and – personal income taxes • Now we have DISPOSABLE INCOME (DI) Disposable income can only be used for consumption or savings (C or S)

  16. GDP to DI • GDP to • NDP to • NI to • PI to • DI to • C and S

  17. Circular Flow • GDP to DI flow worksheet

  18. Classwork • Page 134 #9—we will work this problem together • Page 134 #8—you will do this on your and turn in your work

  19. Income Approach • W + R + I + P + SA = GDP

  20. Income Approach to GDP • Compensation of Employees (Wages) --largest part of the GDP --includes wages, salaries, fringe benefits, health care and pension plans

  21. Income Approach • Rents • Tenant payments • Lease payments

  22. Income Approach • Interests • Money paid by private businesses to suppliers of money capital • Includes interests households receive on savings and bond payments

  23. Income Approach • Proprietor’s Income and corporate profits (Profits) • Net income of unincorporated businesses • Corporate profits: corporate income tax, dividends and undistributed corporate profits

  24. Income Approach • Statistical Adjustments • Indirect business taxes • General sales tax, business property tax, license fees and custom duties • Consumption of Fixed Capital (CFC) (depreciation)

  25. Statistical Adjustment continued • Net foreign factor income in US • Income of foreign nationals must be + • Income of American income earned abroad must be – • GDP measures the output of geographical US regardless of the nationality of the contributors

  26. Income Approach • W + R + I + P + SA = GDP

More Related