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Measuring National Output and National Income. National Income and Product Accounts. National income and product accounts are data collected and published by the government describing the various _________________ __________________ in the economy.
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National Incomeand Product Accounts • National income and product accounts are data collected and published by the government describing the various ___________________________________ in the economy. • The _______________________ is responsible for producing and maintaining the “National Income and Product Accounts” that keep track of GDP.
Gross Domestic Product • Gross domestic product (GDP) is the total market value of all ______ goods and services produced within _____________ by factors of production located ______ a country.
Final Goods and Services • The term final goods and services refers to goods and services produced ___________. • ____________________ are goods produced by one firm for use in further processing by another firm.
Value Added • _____________ is the difference between the value of goods as they leave a _________________ and the cost of the goods as they entered that stage. • In calculating GDP, we can either sum up the value added at each stage of production, or we can take the value of _____ sales. We do not use the value of _____ sales in an economy to measure how much output has been produced.
Exclusions from GDP • GDP ignores all transactions in which money or goods change hands but in which no ____ goods and services are produced.
GDP Versus GNP • GDP is the value of output produced by factors of production located within a country. Output produced by a country’s citizens, regardless of where the output is produced, is measured by gross national product (GNP).
Calculating GDP GDP can be computed in two ways: • The _____________________: A method of computing GDP that measures the amount spent on all final goods during a given period. • The _______________: A method of computing GDP that measures the income—wages, rents, interest, and profits—received by all factors of production in producing final goods.
The Expenditure Approach Expenditure categories: • Personal consumption expenditures (C)—household spending on consumer goods. • Gross private domestic investment (I)—spending by firms and households on ___________: plant, equipment, inventory, and new residential structures.
The Expenditure Approach • Government consumption and gross investment (G) Expenditure categories: • ____________ (EX – IM)—net spending by the rest of the world, or exports (EX) minus imports (IM)
The Expenditure Approach • The expenditure approach calculates GDP by adding together these four components of spending. In equation form:
Personal Consumption Expenditures • Personal consumption expenditures (C) are expenditures by consumers on the following: • ________ goods: Goods that last a relatively long time, such as cars and household appliances. • ___________ goods: Goods that are used up fairly quickly, such as food and clothing. • ________: The things that we buy that do not involve the production of physical things, such as legal and medical services and education.
Gross Private Domestic Investment • _________ refers to the purchase of new capital. • _______________ by the private sector is called gross private domestic investment. It includes the purchase of new housing, plants, equipment, and inventory by the private (or non-government) sector.
Gross Private Domestic Investment • _________________ investment includes expenditures by firms for machines, tools, plants, and so on. • ______________ investment includes expenditures by households and firms on new houses and apartment buildings. • ____________________ computes the amount by which firms’ inventories change during a given period. Inventories are the goods that firms produce now but intend to sell later.
Gross Investment versusNet Investment • Gross investment is the total value of all newly produced capital goods (plant, equipment, housing, and inventory) produced in a given period. • Depreciation is the amount by which an asset’s value falls in a given period. • Net investment equals _________________________________. capitalend of period = capitalbeginning of period + net investment
Government Consumption andGross Investment • Government consumption and gross investment (G) counts expenditures by ____________________ governments for final goods and services.
Net Exports • Net exports (EX – IM) is the difference between _______ (sales to foreigners of U.S.-produced goods and services) and _______ (U.S. purchases of goods and services from abroad). The figure can be positive or negative.
The Income Approach • ______________ is the total income earned by the factors of production owned by a country’s citizens. • The income approach to GDP breaks down GDP into four components: GDP = national income + depreciation + (indirect taxes – subsidies) + net factor payments to the rest of the world + other
From GDP to Disposable Income • __________________ equals gross national product _______________; a nation’s total product minus what is required to ____________________________________.
From GDP to Disposable Income • _______________ is the total income of households. Equals (national income) minus (corporate profits minus dividends) minus (social insurance payments) plus (interest income received from the government and households). • Personal income is the income received by households _____ paying social insurance taxes but _______ paying personal income taxes.
Disposable Personal Income and Personal Saving • The personal saving rate is the percentage of disposable personal income that is saved. If the personal saving rate is _____, households are spending a _____ amount relative to their incomes; if it is high, households are spending cautiously.
Nominal versus Real GDP • ________ GDP is GDP measured in ____________, or the current prices we pay for things. Nominal GDP includes all the components of GDP valued at their current prices. • When a variable is measured in current dollars, it is described in nominal terms.
Calculating Real GDP • A ______ is the importance attached to an item within a group of items. • A _________ is the year chosen for the weights in a fixed-weight procedure. • A ___________ procedure uses weights from a given base year.
Calculating the GDP Price Index • The GDP price index is one measure of the overall price level. • The old procedure used by the Bureau of Economic Analysis (BEA) to estimate changes in the overall price level used the _________ produced in a chosen year (the base year) __________. But overall price increases are sensitive to the choice of the base year. The new procedure, known as the _______ price index, _______ the problems associated with the use of _____________.
The Problems of Fixed Weights The use of fixed price weights to estimate real GDP leads to problems because it ignores: • Structural changes in the economy. • Supply shifts, which cause large decreases in price and large increases in quantity supplied. • The substitution effect of price increases.
Limitations of the GDP Concept • Society is better off when crime decreases, but a decrease in crime is not ______________. • An increase in leisure is an increase in _____________, not counted in GDP. • Nonmarket and _________ activities are not counted even though they amount to real production.
Limitations of the GDP Concept • GDP accounting rules do not adjust for production that _________ the environment. • GDP has nothing to say about the _________ of output. Redistributive income policies have no direct impact on GDP. • GDP is neutral to the ____________ an economy produces.
The Underground Economy • The underground economy is the part of an economy in which transactions take place and in which income is generated that is ___________ and therefore not counted in GDP.
Per Capita GDP/GNP • Per capita GDP or GNP measures a country’s GDP or GNP divided by its population. • Per capita GDP is a better measure of __________________________ that its total GDP or GNP.
