Methods of Measuring National Income -National income methods
NATIONAL INCOME & GDP. National Income Accounting Measures the Economy’s overall performance ...
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Transcript of NATIONAL INCOME & GDP. National Income Accounting Measures the Economy’s overall performance ...
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NATIONAL INCOME & GDP
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National Income Accounting
Measures the Economy’s overall performance Like a personal
accountant….. But for the economy
Bureau of Economic Accounting (BEA)
Complies the National Income and Product Accounts
Assess economic health Track the long-run of the
economy Develop policies to
improve economy
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The GDP
Gross Domestic Product Total market value of all final goods and services in
a given year
Included or excluded??1. Fords produced by an American-owned factory in
Detroit2. Hondas produced by a Japanese-owned factory in
Ohio
Both Included!
GDP includes all goods and services produced within the country
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Gives a Monetary Measure
Year 1: Produce 3 iPods and 2 ZunesYear 2: Produce 2 iPods and 3 Zunes
Which year has a greater output?
Need a price tag!
GDP is based on a monetary measure to gain an accurate measure of economic output
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2 Rules of GDP1. Avoid Multiple Counting:
Only accounts for Final Goods
Final Goods/Services:example: Any retail good
Intermediate G/S:example: Peanuts sold from Bob the farmer to Jiffy to make peanut butter
If both transactions were counted in the GDP we would have multiple counting
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2 Rules of GDP
Public Transfer Payments
SS, Welfare Private Transfer
Payments Cash for B-day
Stocks/Bonds Do not create
production In reality…. They are
just slips of paper!
Sell your ‘03 Toyota Camry to your best friend
……..Just don’t tell them about the brakes……
Financial Transactions Second Hand Sales
2. Excluded Nonproduction Transactions
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Two ‘Faces’ of GDP
a.k.a. Output approach
Sum of all money spent
a.k.a. Allocations approach
Sum of income created during production
Expenditure Approach Income Approach
• In general, buying (spending money) and selling (receiving income) are two aspects of the same transactions
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Expenditures Approach
GDP= C + Ig + G + Xn
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GDP= C+ ………
Personal Consumption Durable consumer goods
Cars, appliances, electronics
Nondurable consumer goods Bread, milk, pencils, toothpaste
Consumer Expenditures for Services Lawyers, doctors, barbers
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GDP=. . . Ig+. . .
Gross Private Domestic Investment1. Final purchases of machinery, equipment, tools2. All construction
Both residential and nonresidential construction
Why is residential construction not counted in consumption?
Houses could be rented to bring in an income return
3. Changes in inventory Including unsold goods… “unconsumed output”
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. . . More about Investment
Not counted in investment Stocks/bonds Resale of tangible goods (houses)
So how does a Realtors Commission fit in? Is it included in GDP?
counted as CONSUMPTION (service)
Overall…. Investment deals with the creation of new capital
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GDP=. . . G+. . .
Government purchases “Government consumption expenditures” All government expenditures on final goods
Service- costs for public goods Social capital- highways, schools
What is not counted in G? Transfer payments
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GDP= . . . Xn
Net Exports (International Trade)
Net Exports (Xn)= Exports (X) – Imports (M)
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GDP Jan. 29th, 2011 Billions of $ % of GDP
Personal Consumption Expenditures (C) 10525.2 70.78% Goods 3533.3 23.76% Durable goods 1135.7 7.64% Nondurable goods 2397.7 16.12% Services 6991.8 47.02%Gross PrivateDomestic Investment (Ig) 1796.7 12.08% Fixed investment 1791.5 12.05% Nonresidential 1457.2 9.80% Structures 384.7 2.59% Equipment and software 1072.5 7.21% Residential 334.3 2.25% Change in private inventories 5.2 0.03%Net Exports of Goods and Services (Xn) -492.2 -3.31% Exports 1923.9 12.94% Goods 1347.7 9.06% Services 576.1 3.87% Imports 2416 16.25% Goods 2002.9 13.47% Services 413.1 2.78%
Government Expenditures and Investment (G) 3040.7 20.45% Federal 1238.7 8.33% National defense 831 5.59% Nondefense 407.7 2.74% State and local 1802 12.12% Gross Domestic Product (Y) 14870.4 100.00%
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Nominal 2009 GDP in USD
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