macroeconomic mcgrowhill macro ch 7 19e use this one

Measuring Domestic Output and National Income Chapter 7... Chapter Objectives• Define and measure GDP • GDP and income relationships • The GDP price index • Nominal GDP vs.. • Bureau of

Measuring Domestic Output and National

Income

Chapter 7

Chapter Objectives

• Define and measure GDP

• GDP and income relationships

• The GDP price index

• Nominal GDP vs real GDP

• Limitations of the GDP measure

• Bureau of Economic Analysis

compiles National Income and

Product Accounts

–Assess health of economy

–Track long run course

–Formulate policy

National Income Accounting

Gross Domestic Product

• Measure of aggregate output

• Monetary measure

• Avoid multiple counting

–Market value final goods

–Ignore intermediate goods

–Count value added

Gross Domestic Product

• Exclude financial transactions

–Public transfer payments

–Private transfer payments

–Stock (and bond) market

transactions

• Second hand sales

–Sell used car to a friend

G D P

+ + +

Wages Rents Interest

Profits

Statistical Adjustments

+

Two Approaches to GDP

Expenditure Approach

• Personal consumption

expenditures (C)

–Durable consumer goods

–Nondurable consumer goods

–Consumer expenditures for

services

–Domestic plus foreign produced

Expenditure Approach

Consumption

& Government Spending

Depreciation

Net Investment Gross

Gross Investment Depreciation

Net Investment

-=

Expenditure Approach

• Government purchases (G)

– Expenditures for goods and services

– Expenditures for social capital

– Excludes transfer payments

• Net exports (Xn)

– Add exported goods

– Subtract imported goods

– NX = exports - imports

Compensation Rents

Interest Proprietor’s Income Corporate Profits Taxes on Production and Imports

National Income

Net Foreign Factor Income (-) Statistical Discrepancy (+) Consumption of Fixed Capital (+)

Gross Domestic Product

$ 7792 268 788 1041 1309

1090

$12,288

105 209

1864

$ 14,256

Personal Consumption (C) Gross Private Domestic Investment (I g )

Government Purchases (G) Net Exports (X n )

$ 14,256

U.S Economy 2009

Comparative GDP

Components of National Income

Income Approach

• From national income to GDP

– Net foreign factor income

– Statistical discrepancy

– Consumption of fixed capital

• Other national accounts

– Net domestic product (NDP)

– National income (NI)

– Personal income (PI)

– Disposable income (DI)

– DI = C + S

U.S Income Relationships 2009

Gross Domestic Product (GDP)

Less: Consumption of Fixed Capital

Equals: Net Domestic Product (NDP)

Less: Statistical Discrepancy

Plus: Net Foreign Factor Income

Equals: National Income (NI)

Less: Taxes on Production and Imports

Less: Social Security Contributions

Less: Corporate Income Taxes

Less: Undistributed Corporate Profits

Plus: Transfer Payments

Equals: Personal Income (PI)

Less: Personal Taxes

Equals: Disposable Income (DI)

$ 14,256

1864

$ 12,392

209 105

$ 12,288

1090 967 315 418 2528

$ 12,026

1102

$ 10,924

Class Exercise

Form groups of 4 to 5 students.

Working together, and using the

data listed on the board solve for

GDP, NPD, NI, PI and DI (use

Expenditure Approach for GDP)

Each group should assign a

spokesperson to review the

solution with the class…….

•Transfer Payments $16 (Dollars in Billions)

•Government Purchases 80

•Personal Taxes 38

•Corporate Income tax 28

•Taxes on Production and Imports 15

•Social Security contributions 8

•Undistributed corporate profits 19

•Proprietor’s income 25

•Compensation of employees 258

•Personal consumption expenditures 322

•Consumption of fixed capital 4

–Reflect changes in price

–Use base year price

Nominal Values

• Deflate GDP when prices rise

• Inflate GDP when prices fall

$ 10 20 25 30 28

100 200 250 - -

$ 50 140 200 - -

$ 50 70 80 - -

(2)

Price Pizza Per Unit

(4)

Unadjusted,

or Nominal, GDP, (1)x(2)

(5)

Adjusted,

Or Real, GDP

Shortcomings of GDP

• Nonmarket activities

• Leisure

• Improved product quality

• The underground economy

• GDP and the environment

• Composition and distribution of the

output

• Noneconomic sources of well-being

Und erground Economy

As a percentage of GDP, Selected

Nations, 2007

Mexico South Korea

India Italy Spain China Sweden Germany France United Kingdom

Japan Switzerland United States

0 5 10 15 20 25 30 Percentage of GDP

Sources of BEA Data

• Consumption

– Census Bureau’s Retail Trade Survey

– Census Bureau’s Survey of Manufacturers

– Census Bureau’s Service Survey

• Investment

– All Consumption data sources

– Census Bureau’s Housing Starts Survey and Housing Sales Survey

– Retail Trade Survey

– Wholesale Trade Survey

– Survey of Manufacturing

– U.S Customs Service

– BEA Surveys and Analysis

Sources of BEA Data

• net exports

• taxes on production and imports

• national income

• consumption of fixed capital

• net domestic product

• personal income

• disposable income

• nominal GDP

• real GDP