micro economics chapter 07

Measuring Domestic Output and National Income... • National Income Accounting• Assess health of economy • Track long run course • Formulate policy • Gross Domestic Product GDP: Total ma

Measuring Domestic Output and

National Income

• National Income Accounting

• Assess health of economy

• Track long run course

• Formulate policy

• Gross Domestic Product (GDP): Total

market value of all final goods and services produced within a country within

a year

Assessing the Economy’s

Performance

LO1

Gross Domestic Product

Gross Domestic Product

transactions

LO1

Circular Flow

RESOURCE MARKET

Circular Flow Revisited

LO2

the final goods

Two Approaches to GDP

the same thing and can be used

interchangeably

LO2

Expenditures Approach

LO2

Changes in Inventories

produced than purchased, so the

increase in inventories must be added

to Ig and GDP

LO2

Net Investment

• Net Investment includes only added capital

during the year.

Expenditures Approach

• Government purchases (G)

• Goods and services

• Publicly owned capital

• Excludes transfer payments

• Net exports (X n)

• Add exported goods

• Subtract imported goods

•

Compensation Rents

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

National Income

Net Foreign Factor Income (-) Consumption of Fixed

Capital (+) Statistical Discrepancy (+)

Gross Domestic Product

$ 9,655

657 524 1,388 2,009

1,302

$15,535

214 2,821

-195

$ 17,947

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

Government Purchases (G) Net Exports (X n )

Gross Domestic Product

in Billions

Receipts Expenditures Approach Allocations Income Approach

$12,272

3,021 3,183 -529

Comparative GDP

Other National Accounts

the stock of capital and the new output

U.S.-owned resources whether they are located in the United States or abroad

LO2

Other National Accounts

whether it was earned or unearned

and able to spend as they desire

DI = C + S

U.S Income Relationships 2015

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)

$ 17,947

2,821

$ 15,126

-195 214

$ 15,535

1,177 1,203 530 591 3,306

$ 15,340

1,945

$ 13,395

LO2

Nominal vs Real GDP

GDP Price Index

GDP

Price Index

In Given Year

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

Underground Economy

LO4