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Measuring the Nation’s Output and Income

Learn about GDP, national output, and income measurement. Explore the factors influencing GDP and the different measures of national income.

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Measuring the Nation’s Output and Income

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  1. Measuring the Nation’s Output and Income 12.1

  2. Gross Domestic Product (GDP): The Measuring of National Output • In 2016 the United States GDP measured $18.56 Trillion • GDP Per Capita of $51,638.10 • China’s GDP in 2014 was $21.27 Trillion (but their currency is considered undervalued so it is difficult to accurately compare to other nations.) • GDP Per Capita of $15,400 • Why is China’s Per Capita so much lower than the United States?

  3. GDP • GDP is a measure of National Output • Japanese cars built in the US count towards the US GDP • U.S. owned plants in Mexico or other countries do not • GDP is calculated by multiplying all final good and services produced in a 12 month period by their prices • Only “final goods” are included. What are those, and why?

  4. Group Work for Extra Credit! • Get into groups of two and have a writing utensil and a piece of paper ready for a GDP Challenge!!!!!

  5. You will have 5 minutes to list, in order from 1 to 10 (one being the greatest), the top 10 individual national economies in the world. • Cell Phones/Books prohibited • Perfect Score gets 5 points Extra Credit

  6. Check Your Answers Top10 in Trillions of US Dollars • China $21.3 • USA: $18.5 • Japan: $4.93 • Germany: $3.49 • UK: $2.65 • France: $2.48 • India: $2.25 • Italy: $1.8 • Brazil: $1.77 • Canada $1.53

  7. Does it really change that much? 2015 2014 • USA: $17.4 • China: $10.4 • Japan: $4.6 • Germany: $3.9 • UK: $2.9 • France: $2.8 • Brazil: $2.4 • Italy: $2.1 • India: $2.0 • Russian Fed: $1.9 • USA: $16.3 • China: $14.8 • India: $6.4 • Japan: $4.5 • Germany: $3.4 • Russian Fed: $3.4 • Brazil: $2.9 • France: $2.4 • UK: $2.3 • Indonesia: $2.2

  8. What is Excluded from GDP? 1. Intermediate goods • Products used to make other products already counted in GDP. • Something that is already a part of another product. What are some examples?

  9. Examples • Factory tires on a new car • Processors on a computer • Sugar used to make Pop Tarts Do aftermarket tires and rims count towards GDP? Should they?

  10. What is Excluded from GDP? 2. Secondhand sales • Anything that you buy that is used • Resold Houses, used cars, clothes from the salvation army. Why should these not be counted towards GDP?

  11. What is Excluded from GDP? 3. Nonmarket Transactions • Things you do yourself • Mowing your lawn • cooking your own meals • cleaning your clothes • Underground activity • Legal: Bake sales, babysitting, flea market, garage sales • Illegal: Drugs, prostitution (other than select parts of Nevada), gambling (unless done in a state casino), counterfeiting.

  12. This means the U.S. underground Economy is $1.4Trillion (world’s 18th largest economy) Why would some nations have higher rates of underground economy?

  13. GDP Over Time • In order to calculate GDP growth or loss you first need to establish a “Base Year” • Base year is: Real GDP • No Base Year: Nominal GDP – doesn’t account for inflation • Current GDP- based upon prices that existed in those years • What changes each year that makes GDP change, even if production does not?

  14. GDP Shortfall • GDP tells us nothing about: • Composition of output • What companies make or produce • The impact of production on quality of life • How building new homes will force a rare bird species into extinction • Despite these limitations, GDP is still the best measure of overall economic health • What does an increase in GDP indicate?

  15. National Income • Gross National Product (GNP) is the measure of national income in ONE YEAR. • GNP is equal to GDP + all payments received from outside US – all payments made to foreign owned resources inside the US. • GDP + Payments outside US – Payments made to foreign owned resources in US = Total GNP

  16. Net National Product (NNP) • NNP = GNP minus depreciation • Depreciation represents capital equipment that wore out or became obsolete during the year • National Income (NI) = NNP minus all taxes paid by businesses other than the corporate profit tax. • Personal Income (PI) = Total amount of income received by individuals before taxes. • Disposable Personal Income (DI) = PI- taxes • Which measure of national income would you be interested in if you were trying to forecast the sales of consumer goods?

  17. Economic Sectors & Circular Flows • The economy consists of several different parts • Look at chart on page 325 • Consumer sector ( C ) • Investor Sector ( I ) • Government Sector ( G ) • Foreign Sector (X – M ) The output expenditure model: • GDP = C + I + G + (X – M)

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