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3.1 Measuring National Income

3.1 Measuring National Income. Circular Flow of Income. National income Sum of all final goods and services produced in an economy during a given time period. (1yr) E=O=Y. Simple Two-Sector Model. Leakages? Injections? What is missing? Total injections= Total Leakages. Transfer Payments.

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3.1 Measuring National Income

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  1. 3.1 Measuring National Income

  2. Circular Flow of Income • National income • Sum of all final goods and services produced in an economy during a given time period. (1yr) • E=O=Y

  3. Simple Two-Sector Model

  4. Leakages? Injections? What is missing? Total injections= Total Leakages

  5. Transfer Payments • How are welfare, education, social programs accounted for? • Rule: Only expenditure flows which have a corresponding output are counted.

  6. Methods of Measurement • Factor Income: Total payments for FOP • Employment • Rental Income • Profits • Interest • Subtract stock appreciation • =GDP at factor cost

  7. Expenditure Method: Total Expenditure • Consumtion (C) • Investments (I) • Government Expend. (G) • Exports (X) • Subtract Imports (M) • Add subsidies • =GDP(same as factor cost)

  8. Output Method • Value-added at each level of output (to avoid double counting)

  9. National and Domestic Product • GDP=output created using Domestic FOP • How do you deal with foreign owned companies within economy? • Domestic assets held abroad? • GNP (Gross National Product) = GDP+Net property income from abroad

  10. LDC= GDP>GNP Why? • They have few companies abroad that are repatriating income. • MDC=GNP>GDP • Many companies abroad

  11. Gross and Net National Product • NNP= GNP-Depreciation

  12. Nominal vs. Real • Nominal= face value • Real= adjusted for inflation • GDPr= GDPnom/CPI X 100

  13. Consumer Price Index (CPI) • Base Line= 100 • CPI of 106 = 6% increase in prices

  14. GDP Deflator • CPI: only consumer goods • GDP Deflator: All goods in GDP • GDPreal = GDP nom / Deflator X 100

  15. Total and Per Capita • Income per capita = GDP/population • Real Income per capita: adjusted for inflation • Which countries do you think are in the top ten by GDP per capita?

  16. GDP by Country USA 32.9% 4.65% Japan 13.4% 2.09% Germany 6.0% 1.36% Britain 4.6% 0.99% France 4.2% 0.97% China 3.7% 20.84% Italy 3.5% 0.95% Canada 2.3% 0.51% Mexico 2.0% 1.62% Spain 1.9% 0.65%

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