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Chap 10, Mankiw – Measurement of national income

Chap 10, Mankiw – Measurement of national income. Introduction and definition of the GDP Gross domestic product – meaning of the term Circular flow diagram and the methods of calculating GDP Other measures of national income Quality of life and GDP. I. Introduction and definition of the GDP

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Chap 10, Mankiw – Measurement of national income

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  1. Chap 10, Mankiw – Measurement of national income • Introduction and definition of the GDP • Gross domestic product – meaning of the term • Circular flow diagram and the methods of calculating GDP • Other measures of national income • Quality of life and GDP

  2. I. Introduction and definition of the GDP • National income can be defined in various ways. The GDP defintion is the most usual. • GDP = • market value • marketed goods vs. non-marketed goods: • final goods and services • produced • within a country:

  3. II. 2 ways of measuring GDP: • expenditure method of calculating GDP: • GDP = Y = • C = consumption expenditure, • I = investment expenditure, • G = Government expenditure, • X = exports, • M = imports

  4. 2. income method of calculating GDP add “value-added” by all firms together; value-added = sum of value added by all firms = Why?

  5. Revenue Spending Goods & Services sold Goods & Services bought Inputs for production Labor, land, and capital Wages, rent, and profit Income III.The Circular-Flow Diagram – equivalence of the 2 methods of measuring GDP Market for Goods and Services Firms Households Market for Factors of Production

  6. III. Other ways of defining National Income • Gross National Product (GNP) • Net National Product (NNP) • National Income • Personal Income • Disposable Personal Income

  7. Gross national product (GNP) is the total income • It differs from GDP by • Net National Product (NNP) is the total income of • Depreciation is the wear and tear on the economy’s NNP is an useful measure because

  8. National Income (NI) is the total income earned by a nation’s • It differs from NNP by excluding • this is excluded because • Personal income (PI) is the total earnings that • Unlike national income, it excludes • In addition, it includes

  9. Disposable personal income (DI) is the income It equals personal income minus

  10. IV. Adjusting GDP for inflation Recap: GDP is measured at market prices which fluctuate form period to period Real GDP: Nominal GDP: GDP deflator =

  11. Real and Nominal GDP

  12. Real and Nominal GDP

  13. Real and Nominal GDP

  14. Real and Nominal GDP

  15. V. Quality of life vs. GDP GDP is positively correlated with but not identical to economic well-being. Factors that creates a difference between the two:

  16. GDP and Its Components (1998) Government Purchases 18% Investment 16% Net Exports -2 % Consumption 68 %

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