Chapter 2: Measuring a nation’s income

Môn Kinh tế vĩ mô Đại học Tôn Đức Thắng: chương trình liên kết ngành Quản Trị Kinh Doanh Môn này gồm tổng cộng 8 chương với các bài giảng về vận hành kinh tế của một quốc gia, xuất nhập khẩu,... Tất cả tài liệu đều được giảng bằng tiếng Anh

Chapter 02 Measuring a Nation’s Income

Teacher: Nguyen Thanh Nhan Course: Macroeconomics- 702021

– Study of economy-wide phenomena

• Including inflation, unemployment, and economic growth

Review Main Vocabulary

of Chapter 01

Table 1

Ten Principles of Economics

Society’s economic well-being

• Gross Domestic Product (GDP) (Tổng sản phẩm

quốc nội) is the most widely-used.

– Measures the total income of everyone in the economy

– Measures the total expenditure on the economy’s output

of goods and services

• For an economy as a whole

– Income must equal expenditure, because

every transaction has two parties: a buyer and a seller.

– Inventory investment is treated as expenditure of the

producer.

Economy’s Income & Expenditure

• Circular-flow diagram – assumptions:

• Goods and services (TT hàng hóa và dịch vụ)

• Factors of production (TT các yếu tố sản xuất)

• Spend all of their income

• Buy all goods and services

Figure 1

The Circular-Flow Diagram

Households buy goods and services from firms, and firms use their revenue from sales to pay wages to workers, rent to landowners, and profit to firm owners

GDP equals the total amount spent by households in the market for goods and services It also equals the total wages, rent, and profit paid by firms in the markets for the factors of production.

The Measurement of GDP

• Gross domestic product (GDP)

– Market value of all final goods and services

– Produced within a country

– In a given period of time

• “ GDP is the market value…”

– Market prices - reflect the value of the goods

The Measurement of GDP

• “… of all…”

– All items produced in the economy

• And sold legally in markets

– Excludes most items

• Produced and sold illicitly

• Produced and consumed at home

The Measurement of GDP

• “… final…”

– Value of intermediate goods (hàng hóa trung

final goods (hàng hóa cuối cùng)

• “… goods and services…”

– Tangible goods & intangible services

• “… produced…”

The Measurement of GDP

• “… within a country…”

– Goods and services produced domestically

• Regardless of the nationality of the producer

• “… in a given period of time”

– A year or a quarter

phủ)

The Components of GDP

– Spending by households on goods and

services

– Exception: purchases of new housing

– Spending on capital equipment, inventories,

and structures

– Household purchases of new housing

– Inventory accumulation

– Spending on goods and services

– By local, state, and federal governments

– Does not include transfer payments

The Components of GDP

• Net exports, NX = Exports – Imports (xuất

khẩu ròng)

• Spending on domestically produced goods by foreigners

• Spending on foreign goods by domestic residents

The components of U.S GDP

• 2012, GDP of the U.S.: over $15 trillion

• GDP per person = $49,923

– Consumption = $35,411 per person

– Investment = $6,557 per person

– Government purchases = $9,758 per person– Net exports = –$1,806 per person

Table 1

GDP and Its Components

This table shows total GDP for the U.S economy in 2012 and the breakdown of GDP among its four components When reading this table, recall the identity

Y = C + I + G + NX.

GDP and Its Components

Quốc gia GDP, tỉ USD C I G% GDPXK NK NXOECD – Tổng 41769.11 62.9 18.2 19.2 27.1 27.8 -0.8Hoa kỳ 14447.10 70.9 14.7 17.5 12.7 16.3 -3.6Nhật 4301.85 58.6 20.5 20.0 15.2 14.1 1.1Đức 3044.24 57.5 17.5 19.7 46.8 41.4 5.5Vương Quốc Anh 2233.88 65.7 14.7 23.1 29.4 32.8 -3.4Pháp 2194.12 58.2 19.3 24.8 25.5 27.8 -2.3

Ý 1908.57 60.4 19.5 21.2 26.8 28.5 -1.8Mexico 1644.48 64.7 20.3 11.6 30.3 31.8 -1.4Tây Ban Nha 1477.84 58.4 22.5 20.8 26.3 28.4 -2.2Hàn Quốc 1417.55 52.5 28.6 15.4 52.4 49.6 2.8Canada 1329.86 57.9 22.1 21.8 29.4 31.3 -1.9Thổ Nhĩ Kỳ 1114.63 71.3 18.7 14.3 21.1 26.6 -5.5

Úc 916.70 52.7 27.4 18.3 20.9 19.8 1.1

Real and Nominal GDP

( GDP thực và GDP danh nghĩa )

change, then GDP will increase double

change, then GDP will increase double

GDP?

Real versus Nominal GDP (GDP danh nghĩa và GDP thật)

• Total spending rises from one year to the next

– Economy - producing a larger output of goods

and services

– And/or goods and services are being sold at

higher prices

• Nominal GDP

– Production of goods and services

– Valued at current prices

Real versus Nominal GDP (GDP danh nghĩa và GDP thật)

• Real GDP

– Production of goods and services

– Valued at constant prices

– Designate one year as base year

– Not affected by changes in prices

• For the base year

– Nominal GDP = Real GDP

Table 2

Real and Nominal GDP

Real versus Nominal GDP

• The GDP deflator (giảm phát GDP)

– Ratio of nominal GDP to real GDP times 100

– Is 100 for the base year

– Measures the current level of prices relative to

the level of prices in the base year

– Can be used to take inflation out of nominal

GDP (“deflate” nominal GDP)

Real versus Nominal GDP

30.9%

An example

Real GDP every years,

using price in year 2011

2011: $10 x 400 + $2 x 1000 = $6,000

2012: $10 x 500 + $2 x 1100 = $7,200

• The change of norminal GDP reflect the

changes in boths quantity and price.

quantity in constant price (mean, inflation = 0)

Real GDP over recent history

• The GDP data

– Real GDP grows over time

– Growth – average 3% per year since 1965

– Growth is not steady

• GDP growth interrupted by recessions

Figure 2

Real GDP in the United States

Real GDP over recent history

• Recession (suy thoái )

– Two consecutive quarters of falling GDP

– Real GDP declines

• GDP – “the best single measure of the

economic well-being of a society”

– Economy’s total income

– Economy’s total expenditure

– Larger GDP

• Good life, better healthcare

• Better educational systems

– Measure our ability to obtain many of the

• Quality of the environment

– Nothing about distribution of

income

GDP reflects the factory’s production, but not the

International differences: GDP &

• Internet usage ( Tỉ lệ sử dụng internet )

• Poor countries - lower GDP per person

– Worse

• Life expectancy

• Literacy

• Internet usage

GDP and Life Expectancy

Russia Brazil

Russia Brazil China

India

Indonesia Nigeria

Pakistan Bangladesh

Mexico Russia

Brazil

China India

Indonesia

Nigeria

Pakistan

International differences: GDP &

quality of life

• Low GDP per person

– More infants with low birth weight

– Higher rates of infant mortality

– Higher rates of maternal mortality

– Higher rates of child malnutrition

– Less common access to safe drinking water– Fewer school-age children are actually in

school

International differences: GDP &

quality of life

• Low GDP per person

– Fewer teachers per student

– Fewer televisions

– Fewer telephones

– Fewer paved roads

– Fewer households with electricity

Table 3

GDP and the Quality of Life

Multiple choice questions

Angus the sheep farmer sells wool to Barnaby the knitter for $20 Barnaby

makes two sweaters, each of which has a market price of $40 Collette buys one of them, while the other remains on the shelf of Barnaby’s store to be sold later What is GDP here?

a $40

b $60

c $80

d $100

Thank you