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ECO285 National Income Accounting II

ECO285 National Income Accounting II. Dr. Dennis Foster – Spring 2014. Required additional reading:. Should we believe the GDP? Mises wiki on GDP and problems Higgs and Real GDPP Rothbard’s Private Product Remaining Counting what counts: GDP redefined Beyond GDP – Enlarged GDP & FAQs

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ECO285 National Income Accounting II

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  1. ECO285National Income Accounting II Dr. Dennis Foster – Spring 2014

  2. Required additional reading: • Should we believe the GDP? • Mises wiki on GDP and problems • Higgs and Real GDPP • Rothbard’s Private Product Remaining • Counting what counts: GDP redefined • Beyond GDP – Enlarged GDP &FAQs • Skousen – Gross Domestic Expenditures

  3. Interpreting the GDP • From the circular flow, we get: Income = Y = C + S + T Income = Expenditures Y = C + I + G + (Ex-Im) • Substitute, cancel C and rearrange to get: S + T + Im = I + G + Ex Leakages = Injections

  4. Interpreting the GDP • Further rearrange to get: I = S + (T-G) + (Im-Ex) • Investment comes from three sources: • Private sector savings. • Government “savings.” • Foreign sector savings. • Where economic growth is primarily determined by investment . . . 2011: $2.34 t ≈ $2.83 t - $1.0 t + $570 b

  5. GDP as the sum of “values added” • Finding C, I, G and net X is difficult. • Values are estimated based on statistical analysis. • GDP is calculated by adding up all values added. VA = (sales revenue) – (cost of inputs) • This data is obtainable from tax info.

  6. GDP: Nominal vs. Real • Nominal = “current dollar” value • Real = “constant dollar” value

  7. Next – GDP Issues • What are we really measuring? • What are we trying to measure? • How good a job to we do at this? • What gets left out? • Are there better measures? • Why do we even want tomeasure economic activity?

  8. ECO285National Income Accounting II Dr. Dennis Foster – Spring 2014

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