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Measuring National Output and National Income

Measuring National Output and National Income. National Income and Product Accounts. National income and product accounts are data collected and published by the government describing the various _________________ __________________ in the economy.

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Measuring National Output and National Income

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  1. Measuring National Output and National Income

  2. National Incomeand Product Accounts • National income and product accounts are data collected and published by the government describing the various ___________________________________ in the economy. • The _______________________ is responsible for producing and maintaining the “National Income and Product Accounts” that keep track of GDP.

  3. Gross Domestic Product • Gross domestic product (GDP) is the total market value of all ______ goods and services produced within _____________ by factors of production located ______ a country.

  4. Final Goods and Services • The term final goods and services refers to goods and services produced ___________. • ____________________ are goods produced by one firm for use in further processing by another firm.

  5. Value Added • _____________ is the difference between the value of goods as they leave a _________________ and the cost of the goods as they entered that stage. • In calculating GDP, we can either sum up the value added at each stage of production, or we can take the value of _____ sales. We do not use the value of _____ sales in an economy to measure how much output has been produced.

  6. Value Added

  7. Exclusions from GDP • GDP ignores all transactions in which money or goods change hands but in which no ____ goods and services are produced.

  8. GDP Versus GNP • GDP is the value of output produced by factors of production located within a country. Output produced by a country’s citizens, regardless of where the output is produced, is measured by gross national product (GNP).

  9. Calculating GDP GDP can be computed in two ways: • The _____________________: A method of computing GDP that measures the amount spent on all final goods during a given period. • The _______________: A method of computing GDP that measures the income—wages, rents, interest, and profits—received by all factors of production in producing final goods.

  10. The Expenditure Approach Expenditure categories: • Personal consumption expenditures (C)—household spending on consumer goods. • Gross private domestic investment (I)—spending by firms and households on ___________: plant, equipment, inventory, and new residential structures.

  11. The Expenditure Approach • Government consumption and gross investment (G) Expenditure categories: • ____________ (EX – IM)—net spending by the rest of the world, or exports (EX) minus imports (IM)

  12. The Expenditure Approach • The expenditure approach calculates GDP by adding together these four components of spending. In equation form:

  13. Personal Consumption Expenditures • Personal consumption expenditures (C) are expenditures by consumers on the following: • ________ goods: Goods that last a relatively long time, such as cars and household appliances. • ___________ goods: Goods that are used up fairly quickly, such as food and clothing. • ________: The things that we buy that do not involve the production of physical things, such as legal and medical services and education.

  14. Components of GDP, 1999:The Expenditure Approach

  15. Gross Private Domestic Investment • _________ refers to the purchase of new capital. • _______________ by the private sector is called gross private domestic investment. It includes the purchase of new housing, plants, equipment, and inventory by the private (or non-government) sector.

  16. Gross Private Domestic Investment • _________________ investment includes expenditures by firms for machines, tools, plants, and so on. • ______________ investment includes expenditures by households and firms on new houses and apartment buildings. • ____________________ computes the amount by which firms’ inventories change during a given period. Inventories are the goods that firms produce now but intend to sell later.

  17. Gross Investment versusNet Investment • Gross investment is the total value of all newly produced capital goods (plant, equipment, housing, and inventory) produced in a given period. • Depreciation is the amount by which an asset’s value falls in a given period. • Net investment equals _________________________________. capitalend of period = capitalbeginning of period + net investment

  18. Government Consumption andGross Investment • Government consumption and gross investment (G) counts expenditures by ____________________ governments for final goods and services.

  19. Net Exports • Net exports (EX – IM) is the difference between _______ (sales to foreigners of U.S.-produced goods and services) and _______ (U.S. purchases of goods and services from abroad). The figure can be positive or negative.

  20. The Income Approach • ______________ is the total income earned by the factors of production owned by a country’s citizens. • The income approach to GDP breaks down GDP into four components: GDP = national income + depreciation + (indirect taxes – subsidies) + net factor payments to the rest of the world + other

  21. The Income Approach

  22. From GDP to Disposable Income

  23. From GDP to Disposable Income • __________________ equals gross national product _______________; a nation’s total product minus what is required to ____________________________________.

  24. From GDP to Disposable Income • _______________ is the total income of households. Equals (national income) minus (corporate profits minus dividends) minus (social insurance payments) plus (interest income received from the government and households). • Personal income is the income received by households _____ paying social insurance taxes but _______ paying personal income taxes.

  25. Disposable Personal Income and Personal Saving

  26. Disposable Personal Income and Personal Saving • The personal saving rate is the percentage of disposable personal income that is saved. If the personal saving rate is _____, households are spending a _____ amount relative to their incomes; if it is high, households are spending cautiously.

  27. Nominal versus Real GDP • ________ GDP is GDP measured in ____________, or the current prices we pay for things. Nominal GDP includes all the components of GDP valued at their current prices. • When a variable is measured in current dollars, it is described in nominal terms.

  28. Calculating Real GDP • A ______ is the importance attached to an item within a group of items. • A _________ is the year chosen for the weights in a fixed-weight procedure. • A ___________ procedure uses weights from a given base year.

  29. Calculating Real GDP

  30. Calculating the GDP Price Index • The GDP price index is one measure of the overall price level. • The old procedure used by the Bureau of Economic Analysis (BEA) to estimate changes in the overall price level used the _________ produced in a chosen year (the base year) __________. But overall price increases are sensitive to the choice of the base year. The new procedure, known as the _______ price index, _______ the problems associated with the use of _____________.

  31. The Problems of Fixed Weights The use of fixed price weights to estimate real GDP leads to problems because it ignores: • Structural changes in the economy. • Supply shifts, which cause large decreases in price and large increases in quantity supplied. • The substitution effect of price increases.

  32. Limitations of the GDP Concept • Society is better off when crime decreases, but a decrease in crime is not ______________. • An increase in leisure is an increase in _____________, not counted in GDP. • Nonmarket and _________ activities are not counted even though they amount to real production.

  33. Limitations of the GDP Concept • GDP accounting rules do not adjust for production that _________ the environment. • GDP has nothing to say about the _________ of output. Redistributive income policies have no direct impact on GDP. • GDP is neutral to the ____________ an economy produces.

  34. The Underground Economy • The underground economy is the part of an economy in which transactions take place and in which income is generated that is ___________ and therefore not counted in GDP.

  35. Per Capita GDP/GNP • Per capita GDP or GNP measures a country’s GDP or GNP divided by its population. • Per capita GDP is a better measure of __________________________ that its total GDP or GNP.

  36. Per Capita GDP/GNP

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