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national income and product accounts (gross domestic product (GDP)…
national income and product accounts
gross domestic product (GDP)
The total market value of all final goods and services produced within a given period by factors of production located within a country.
the total market value of a country’s output.
Exclusion of Used Goods and Paper Transaction
GDP is concerned only with new, or current, production. Old output is not counted in current GDP because it was already counted when it was produced.
GDP does not count transactions in which money or goods change hands but in which no new goods and services are produced.
calculating GDP, we can sum up the value added at each stage of production or we can take the value of final sales.We do not use the value of total sales in an economy to measure how much output has been produced.
expenditure approach
A method of computing GDP that measures the total amount spent on all final goods and services during a given period
main categories
Personal consumption expenditures (C): household spending on consumer goods
personal consumption expenditures (C) Expenditures by consumers on goods and services
durable goods Goods that last a relatively long time, such as cars and household appliances.
services The things we buy that do not involve the production of physical things, such as legal and medical services and education.
nondurable goods Goods that are used up fairly quickly, such as food and clothing.
Gross private domestic investment (I): spending by firms and households on new capital—that is, plant, equipment, inventory, and new residential structures
Gross private domestic investment (I): spending by firms and households on new capital—that is, plant, equipment, inventory, and new residential structure
gross private domestic investment (I) Total investment in capital—that is, the purchase of new housing, plants, equipment, and inventory by the private (or nongovernment) sector
residential investment Expenditures by households and firms on new houses and apartment buildings.
nonresidential investment Expenditures by firms for machines, tools, plants, and so on.
change in business inventories The amount by which firms’ inventories change during a period. Inventories are the goods that firms produce now but intend to sell later.GDP = final sales + change in business inventories
depreciation The amount by which an asset’s value falls in a given period.
gross investment The total value of all newly produced capital goods (plant, equipment, housing, and inventory) produced in a given period
net investment Gross investment minus depreciation.
capitalend of period = capitalbeginning of period + net investment
Government consumption and gross investment (G)
Expenditures by federal, state, and local governments for final goods and services.
Net exports (EX – IM): net spending by the rest of the world, or exports (EX) minus imports (IM)
The difference between exports (sales to foreigners of U.S.-produced goods and services) and imports (U.S. purchases of goods and services from abroad). The figure can be positive or negative
income approach
A method of computing GDP that measures the income—wages, rents, interest, and profits—received by all factors of production in producing final goods and services.
national income : The total income earned by the factors of production owned by a country’s citizens.
compensation of employees Includes wages, salaries, and various supplements—employer contributions to social insurance and pension funds, for example—paid to households by firms and by the government
proprietors’ income : The income of unincorporated businesses.
rental income : The income received by property owners in the form of rent.
corporate profits :The income of corporations.
net interest : The interest paid by business
indirect taxes minus subsidies : Taxes such as sales taxes, customs duties, and license fees less subsidies that the government pays for which it receives no goods or services in return.
net business transfer payments : Net transfer payments by businesses to others
net national product (NNP) :Gross national product minus depreciation; a nation’s total product minus what is required to maintain the value of its capital stock.
surplus of government enterprises Income of government enterprises.
statistical discrepancy : Data measurement error
personal income : The total income of households
disposable personal income or after-tax income : Personal income minus personal income taxes. The amount that households have to spend or save
personal saving : The amount of disposable income that is left after total personal spending in a given period.
personal saving rate : The percentage of disposable personal income that is saved. If the personal saving rate is low, households are spending a large amount relative to their incomes; if it is high, households are spending cautiously.
Exclusion of Output Produced Abroad by Domestically Owned Factors of Production
GDP is the value of output produced by factors of production located within a country.
gross national product (GNP) The total market value of all final goods and services produced within a given period by factors of production owned by a country’s citizens, regardless of where the output is produced.
Calculating Real GDP
base year
The year chosen for the weights in a fixedweight procedure.
fixed-weight procedure
A procedure that uses weights from a given base year.
Nominal versus Real GDP
current dollars
The current prices that we pay for goods and services.
nominal GDP
Gross domestic product measured in current dollars.
weight
The importance attached to an item within a group of items.
intermediate goods
Goods that are produced by one firm for use in further processing or for resale by another firm
final goods and services
Goods and services produced for final use
value added
The difference between the value of goods as they leave a stage of production and the cost of the goods as they entered that stage
Calculating the GDP Deflator
The GDP deflator is one measure of the overall price level
Policy makers need not only good measures of how real output is changing but also good measures of how the overall price level is changing.
Limitations of the GDP Concept
GDP and Social Welfare
If crime levels went down, society would be better off, but a decrease in crime is not an increase in output and is not reflected in GDP
Most nonmarket and domestic activities, such as housework and child care, are not counted in GDP
An increase in leisure is also an increase in social welfare, sometimes associated with a decrease in GDP
GDP also has nothing to say about the distribution of output among individuals in a society
The Informal Economy
The part of the economy in which transactions take place and in which income is generated that is unreported and therefore not counted in GDP.
Gross National Income per Capita
converted into dollars using an average of currency exchange rates over several years adjusted for rates of inflation.
The Problems of Fixed Weights
Many structural changes took place in the U.S. economy between the 1950s and 1987.
The use of fixed-price weights does not account for the responses in the economy to supply shifts.
The fixed-weight procedure ignores the substitution away from goods whose prices are increasing and toward goods whose prices are decreasing or whose prices are increasing less rapidly.