ECO285 ECO285 National Income National Income Accounting II Accounting II Dr. Dennis Foster – Spring 2014
ECO285 National Income Accounting II
Jan 12, 2016
ECO285 National Income Accounting II. Dr. Dennis Foster – Spring 2014. Required additional reading:. Should we believe the GDP? Mises wiki on GDP and problems Higgs and Real GDPP Rothbard’s Private Product Remaining Counting what counts: GDP redefined Beyond GDP – Enlarged GDP & FAQs - PowerPoint PPT Presentation
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ECO285ECO285National Income Accounting IINational Income Accounting II
Dr. Dennis Foster – Spring 2014
Required additional reading:Required additional reading:
• Should we believe the GDP?
• Mises wiki on GDP and problems
• Higgs and Real GDPP
• Rothbard’s Private Product Remaining
• Counting what counts: GDP redefined
• Beyond GDP – Enlarged GDP &FAQs
• Skousen – Gross Domestic Expenditures
Interpreting the GDPInterpreting the GDP• From the circular flow, we get:
Income = Y = C + S + T
Income = Expenditures
Y = C + I + G + (Ex-Im)• Substitute, cancel C and rearrange to get:
S + T + Im = I + G + Ex
Leakages = Injections
Interpreting the GDPInterpreting the GDP
• Further rearrange to get:
I = S + (T-G) + (Im-Ex)• Investment comes from three sources:– Private sector savings.– Government “savings.”– Foreign sector savings.
• Where economic growth is primarily determined by investment . . .
2011: $2.34 t ≈ $2.83 t - $1.0 t + $570 b
GDP as the sum of “values added”GDP as the sum of “values added”
• Finding C, I, G and net X is difficult.
• Values are estimated based on statistical analysis.
• GDP is calculated by adding up all values added.
VA = (sales revenue) – (cost of inputs)
• This data is obtainable from tax info.
GDP: Nominal vs. RealGDP: Nominal vs. Real• Nominal = “current dollar” value• Real = “constant dollar” value
Q P Q*Pbread 100 $2.50 $250.00shoes 9 $22.50 $202.50
movies 15 $8.00 $120.00hammocks 2 $45 $90.00
$662.50 GDP
2013
current dollar
Q P Q*Pbread 95 $3.00 $285.00shoes 10 $23.00 $230.00
movies 17 $8.00 $136.00hammocks 2 $45 $90.00
$741.00 GDP
2014
current dollar
Q P Q*Pbread 95 $2.50 $237.50shoes 10 $22.50 $225.00
movies 17 $8.00 $136.00hammocks 2 $45 $90.00
$688.50 GDP
2014
constant dollar
11.8%
3.9%
Next – GDP IssuesNext – GDP Issues
• What are we really measuring?• What are we trying to measure?• How good a job to we do at this?• What gets left out?• Are there better measures?
• Why do we even want tomeasure economic activity?
ECO285ECO285National Income Accounting IINational Income Accounting II
Dr. Dennis Foster – Spring 2014
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