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Chapter  7 Measuring Domestic Output and National Income Chapter  7 Measuring Domestic Output and National Income

Chapter 7 Measuring Domestic Output and National Income - PowerPoint Presentation

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Chapter 7 Measuring Domestic Output and National Income - PPT Presentation

Assessing the Economys Performance National income accounting measures economy s overall performance Bureau of Economic Analysis compiles National Income and Product Accounts Assess health of economy ID: 759543

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Slide1

Chapter 7

Measuring Domestic Output and National Income

Slide2

Assessing the Economy’s Performance

National income accounting measures economy’s overall performanceBureau of Economic Analysis compiles National Income and Product AccountsAssess health of economyTrack long-run courseFormulate policy

LO1

Slide3

Gross Domestic Product

Measure of aggregate outputMonetary measureAvoid multiple countingMarket value final goodsIgnore intermediate goodsCount value added

LO1

Slide4

Monetary Measure

LO1

Slide5

Gross Domestic Product Continued

(1)

Stage of Production

(2)Sales Valueof Materialsor Product

$ 0

Firm A, sheep ranch

120

Firm B, wool producer

180

Firm C, coat manufacturer

220

Firm D, clothing wholesaler

270

Firm E, retail clothier

350

Total Sales Value

$1140

Value Added (total income)

(3)

Value

Added

]--------$120 (= $120 - $ 0)

]-------- 60 (= 180 - 120)

]-------- 40 (= 220 - 180)

]-------- 50 (= 270 - 220)

]-------- 80 (= 350 - 270)

$350

LO1

Slide6

Gross Domestic Product Concluded

Exclude financial transactionsPublic transfer paymentsPrivate transfer paymentsStock market transactionsExclude second hand salesSell used car to a friend

LO1

Slide7

Two Approaches to GDP

Income approachCount income derived from productionWages, rental income, interest income, profitExpenditure approachCount sum of money spent buying the final goodsWho buys the goods?

LO1

Slide8

Two Approaches to GDP Cont’d

G

D

P

=

=

+

Consumption by

Households

Investment byBusinesses

GovernmentPurchases

ExpendituresBy Foreigners

+

+

+

+

+

Wages

Rents

Interest

Profits

StatisticalAdjustments

+

Expenditures or Output Approach

Income or Allocations Approach

LO1

Slide9

Expenditures Approach

Personal consumption expenditures (C)Durable goodsNondurable goodsConsumer expenditures for servicesDomestic plus foreign goods produced

LO2

Slide10

Expenditures Approach Continued

Gross private domestic investment (Ig)Machinery, equipment, and toolsAll constructionPositive and negative changes in inventoriesCreation of new capital assetsNoninvestment transactions excluded

LO2

Slide11

Expenditures Approach: Investment

January 1

Year’

s GDP

December 31

Consumption,governmentexpenditures, and net exports

Depreciation

NetInvestment

Gross

Investment

Stock ofCapital

Stock

ofCapital

Gross Investment

Depreciation

Net Investment

-

=

LO2

Slide12

Expenditures Approach Concluded

Government purchases (G)Expenditures for goods and servicesExpenditures for publicly owned capitalExcludes transfer paymentsNet exports (Xn)Add exported goodsSubtract imported goodsXn= exports (X) - imports (M)GDP = C + Ig + G + Xn

LO2

Slide13

Accounting Statement for the U.S. Economy, 2015

LO2

Slide14

Comparative GDP

LO2

Slide15

The Income Approach

Compensation of employeesRentsInterestProprietor’s incomeCorporate profitsCorporate income taxesDividendsUndistributed corporate profitsTaxes on production and imports

LO3

Slide16

The Income Approach Continued

From national income to GDPSubtract net foreign factor incomeStatistical discrepancyConsumption of fixed capitalOther national accountsNet domestic product (NDP)National income (NI)Personal income (PI)Disposable income (DI)

LO3, LO4

Slide17

U.S. Income Relationships 2015

LO4

Slide18

Circular Flow Revisited

LO4

Slide19

Nominal GDP vs. Real GDP

GDP is a dollar measure of productionUsing dollar values creates problemsNominal GDPBased on prices that prevailed when output was producedReal GDPReflect changes in the price levelUse base year price

LO5

Slide20

GDP Price Index

Use price index to determine real GDP

Price

IndexIn GivenYear

=

×

100

Price of Market Basket

in Specific Year

Price of Same Basketin Base Year

Real

GDP

=

Nominal GDP

Price Index (in hundredths)

LO5

Slide21

GDP Price Index Continued

Calculating Real GDP (Base Year = Year 1)

Year(1)Units of Output(2)Price of PizzaPer Unit(3)Price Index(Year 1 = 100)(4) Unadjusted, or Nominal, GDP(1) × (2)(5)Adjusted, or Real, GDP15$10100$ 50$502720200 140703825250 2008041030---------51128---------

LO5

Slide22

Real World Considerations

Slide23

Shortcomings of GDP

Nonmarket activitiesLeisureImproved product qualityThe underground economyGDP and the environmentComposition and distribution of outputNoneconomic sources of well-being

LO6

Slide24

Underground Economy

LO6

Slide25

Gross Output

Sum ofResource ExtractionProductionDistribution Final Output (GDP)Larger than GDPBetter reflection of productive side of economy

LO6

Slide26

Sources of BEA Data

Consumption

Census Bureau’s Retail Trade Survey

Census Bureau’s Survey of Manufacturers

Census Bureau’s Service Survey

Industry trade sources

Slide27

Sources of BEA Data Continued

Investment

All consumption data sources

Census Bureau’s Housing Starts Survey and Housing Sales Survey

Retail Trade Survey

Wholesale Trade Survey

Survey of Manufacturing

Slide28

Sources of BEA Data Concluded

Government Purchases

Office of Personnel Management

Construction surveys

Census Bureau’s Survey of Government Finance

Net Exports

U.S. Customs Service

BEA surveys and analysis