2. National Income Accounts
GDP (Gross Domestic Product)
What is it???
It measures the market value of all final goods and
services produced during a year by resources
located in the U.S., regardless of who owns the
resources.
3. National Income Account
It is based on the simple fact that one person’s spending
is another person’s income.
It is measured in two ways: Total spending of the U.S.
production or by the Total income received from that
production.
4. What is included in GDP?
It includes only final goods and services, i.e. goods sold
to the final user.
Example
Intermediate goods and services are not included.
These are goods that are purchased for resale.
Example
6. Expenditure Approach
For the expenditure approach, its components are
divided into four:
Consumption
Investment
Government purchases
Net Exports
8. Income Approach
The income approach sums, or aggregates, income
arising from production.
Wages
Interest
Rent
Profit
9. Aggregate Income
Aggregate Income equals the sum of all the income
earned by resource suppliers in the economy.
SO… we can say :
Aggregate Expenditures = GDP=Aggregate Income
Value Added: At each stage of production, the value added to
the product. This is the selling price of the product minus the
cost of the intermediate goods purchased from other firms.
10. Disposable Income (DI)
The income households have available to spend or to
save after paying taxes and receiving transfer payments.
This is income that is adjusted for net taxes(NT).
This subtracts taxes and adds back transfer payments.
Take-home pay for households.
11. Expenditure Half of the Circular Flow
Where does DI (Disposable Income) go?
Part is spent on Consumption (C ) and part is spent on
Savings ( S).
Consumption remains in the circular flow
However, savings flows to financial markets- banks and other
financial institutions.
13. Some Production is not included in GDP
It ignores all do-it-yourself production
Child care
Meal preparation
House cleaning
Laundry
Home maintenance and repair
It ignores off-the-book production
Underground economies
14. Some Other Limitations
Leisure, Quality, and Variety
It does not take into account depreciation
Net domestic product.
GDP does not reflect all costs.
Environmental costs
Other externalities
GDP and Economic Welfare
15. Nominal GDP
It is based on the prices prevailing when production
takes place.
Since, price levels change over time, then nominal GDP
cannot be compared across years.
It does not adjust for inflation!!
16. Price Indexes
Base year- the point of reference year
Prices in other years are expressed relative to the base-year
price.
A price index is constructed by dividing each year’s price in
the base year and then multiplying by 100.
The price index in the base year is ALWAYS 100.
17. Consumer Price Index (CPI)
The CPI measures changes over time in the cost of
buying a “market basket” of goods and services purchased
by a typical family.
The government used the 36 months of 1982 thru 1984
as the base period for calculating the CPI for a market
basket .
It is reported monthly.
http://data.bls.gov/PDQ/servlet/SurveyOutputServle
t?
data_tool=latest_numbers&series_id=CUSR0000SA0&
output_view=pct_1mth
19. Problems with CPI
Quality bias
It overstates inflation
It ignores the substitution effect.
It overstates inflation
Discount stores
Widely used products
20. GDP Price Index
It measures the average price of all goods and services
produced in the economy.
(Nominal GDP/Real GDP)*100
Before 1995
Fixed-weighted system; base year 1987
Chain-weighted system; base year 2000
Notas del editor
Consumption is personal consumption expenditures (e.g. purchases of final goods and services). Consumption is the largest component of GDP and it includes nondurable and durable goods. Investment (Gross Private Domestic Investment) is spending on new capital goods and on net additions to inventories. It also includes new residential construction. It includes inventories. Gov. purchases include government spending for goods and services. It excludes transfer payments. Net exports are Exports-Imports.
The value added is the income earned by resource suppliers. “The value added at all stages sums to the market value of the final good, and the value added for all final goods sums to GDP based
