Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Chapter 27 Measuring Domestic Output and National Income
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Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Chapter 27Measuring Domestic Output and National Income
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Assessing the Economy’s Performance• Nationalincomeaccountingmeasureseconomy’soverallperformance• BureauofEconomicAnalysiscompilesNationalIncomeandProductAccounts• Assesshealthofeconomy• Tracklong-runcourse• Formulatepolicy
LO1
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Gross Domestic Product•Measureofaggregateoutput•Monetarymeasure• Avoidmultiplecounting•Marketvaluefinalgoods• Ignoreintermediategoods• Countvalueadded
LO1
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Monetary Measure
LO1
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Gross Domestic Product Continued
(1)StageofProduction
(2)SalesValueofMaterialsorProduct
$0
FirmA,sheepranch 120
FirmB,woolproducer 180
FirmC,coatmanufacturer 220
FirmD,clothingwholesaler 270
FirmE,retailclothier 350
TotalSalesValue $1140
ValueAdded(totalincome)
(3)ValueAdded
]--------$120(=$120- $0)
]-------- 60(=180- 120)
]-------- 40(=220- 180)
]-------- 50(=270- 220)
]-------- 80(=350- 270)
$350
LO1
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Gross Domestic Product Concluded• Excludefinancialtransactions• Publictransferpayments• Privatetransferpayments• Stockmarkettransactions• Excludesecondhandsales• Sellusedcartoafriend
LO1
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Two Approaches to GDP• Incomeapproach• Countincomederivedfromproduction•Wages,rentalincome,interestincome,profit
• Expenditureapproach• Countsumofmoneyspentbuyingthefinalgoods•Whobuysthegoods?
LO1
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Two Approaches to GDP Cont’d
GDP
= =
+ConsumptionbyHouseholds
InvestmentbyBusinesses
GovernmentPurchases
ExpendituresByForeigners
++
+++
Wages
Rents
Interest
Profits
StatisticalAdjustments
+
ExpendituresorOutputApproach
IncomeorAllocationsApproach
LO1
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Expenditures Approach• Personalconsumptionexpenditures(C)• Durablegoods• Nondurablegoods• Consumerexpendituresforservices• Domesticplusforeigngoodsproduced
LO2
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Expenditures Approach Continued• Grossprivatedomesticinvestment(Ig)•Machinery,equipment,andtools• Allconstruction• Positiveandnegativechangesininventories
• Creationofnewcapitalassets• Noninvestmenttransactionsexcluded
LO2
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Expenditures Approach: Investment
January1 Year’sGDP December31
Consumption,governmentexpenditures,andnetexports
Depreciation
NetInvestment
GrossInvestment
StockofCapital
Stock
ofCapital
GrossInvestmentDepreciationNetInvestment
-=
LO2
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Expenditures Approach Concluded• Governmentpurchases(G)• Expendituresforgoodsandservices• Expendituresforpubliclyownedcapital• Excludestransferpayments
• Netexports(Xn)• Addexportedgoods• Subtractimportedgoods• Xn=exports(X)- imports(M)
GDP=C +Ig +G +XnLO2
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Accounting Statement for the U.S. Economy, 2015
LO2
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Comparative GDP
LO2
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The Income Approach• Compensationofemployees• Rents• Interest• Proprietor’sincome• Corporateprofits• Corporateincometaxes• Dividends• Undistributedcorporateprofits• Taxesonproductionandimports
LO3
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The Income Approach Continued• FromnationalincometoGDP• Subtractnetforeignfactorincome• Statisticaldiscrepancy• Consumptionoffixedcapital• Othernationalaccounts• Netdomesticproduct(NDP)• Nationalincome(NI)• Personalincome(PI)• Disposableincome(DI)
LO3,LO4
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U.S. Income Relationships 2015
LO4
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Circular Flow Revisited
LO4
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Nominal GDP vs. Real GDP• GDPisadollarmeasureofproduction• Usingdollarvaluescreatesproblems• NominalGDP• Basedonpricesthatprevailedwhenoutputwasproduced
• RealGDP• Reflectchangesinthepricelevel• Usebaseyearprice
LO5
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GDP Price Index• UsepriceindextodeterminerealGDP
PriceIndexInGivenYear
= ×100PriceofMarketBasket
inSpecificYearPriceofSameBasket
inBaseYear
RealGDP =
NominalGDP
PriceIndex(inhundredths)
LO5
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GDP Price Index Continued• CalculatingRealGDP(BaseYear=Year1)
Year
(1)UnitsofOutput
(2)PriceofPizza
PerUnit
(3)PriceIndex
(Year1=100)
(4)Unadjusted,orNominal,
GDP(1)× (2)
(5)Adjusted,orReal,GDP
1 5 $10 100 $50 $50
2 7 20 200 140 703 8 25 250 200 80
4 10 30 --- --- ---
5 11 28 --- --- ---LO5
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Real World Considerations
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Shortcomings of GDP• Nonmarketactivities• Leisure• Improvedproductquality• Theundergroundeconomy• GDPandtheenvironment• Compositionanddistributionofoutput• Noneconomicsourcesofwell-being
LO6
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Underground Economy
LO6
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Gross Output• Sumof• ResourceExtraction• Production• Distribution• FinalOutput(GDP)• LargerthanGDP• Betterreflectionofproductivesideofeconomy
LO6
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Sources of BEA Data• Consumption• CensusBureau’sRetailTradeSurvey• CensusBureau’sSurveyofManufacturers• CensusBureau’sServiceSurvey• Industrytradesources
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Sources of BEA Data Continued
• Investment• Allconsumptiondatasources• CensusBureau’sHousingStartsSurveyandHousingSalesSurvey• RetailTradeSurvey•WholesaleTradeSurvey• SurveyofManufacturing
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Sources of BEA Data Concluded
• GovernmentPurchases• OfficeofPersonnelManagement• Constructionsurveys• CensusBureau’sSurveyofGovernmentFinance
• NetExports• U.S.CustomsService• BEAsurveysandanalysis
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