1.1: Introduction to GDP and Production (2.1-2.2) Flashcards
national income accounts
accounting framework used in measuring current economic activity
- PRODUCT APPROACH: amount of output produced, excluding output used up in intermediate stages of production
- INCOME APPROACH: incomes received by producers of output
- EXPENDITURE APPROACH: amount of spending by ultimate purchasers of output
product approach
measures econ activity by adding the market values of G&S produced, excluding any G&S used up in intermediate stages of production
value-added concept (value of output - value of inputs it purchases from other producers)
sums all value-added by producers
income approach
measure econ activity by adding all income received by producers of output - including wages received by workers and profits received by owners of firm.
expenditure approach
measures activity by adding the amount spent by all ultimate users of output.
fundamental identity of national income accounting
total production = total income = total expenditure
gross domestic product
market value of final G&S newly produced within a nation during a fixed period of time
intermediate goods and services
those used up in the production of other G&S in the same period that they themselves were produced
flour that is produced and then used to make bread in the same year = int good
final goods and services
the end products of a process.
bread produced by the bakery, shopper’s bus ride home = final good/service
capital good
good that is itself produced and is used to produce other goods
inventories
stocks of unsold finished goods, goods in process, and raw materials held by firms.
is treated as a final good and part of GDP b/c increased inventories on hand imply greater productive capacity in the future
gross national product
market value of final G&S newly produced by domestic factors during current period (GDP production takes places WITHIN a country)
net factor payments from abroad (NFP)
income paid to domestic factors of production by the rest of the world minus income paid to foreign factors of production by the domestic economy
GDP = xxx - xxx
GDP = GNP - NFP
expenditure approach to measuring GDP
income-expenditure identity
Y = C + I + G + NX
GDP = consumption + investment + government purchases of G&S + net exports of G&S
consumption
- consumer durables (cars, tvs, furniture, fridges, not houses)
- nondurable goods (food, clothing, fuel)
- services (health care, education, transit)
investment
spending for new capital goods (fixed investment) and increases in firms’ inventory holdings (inventory investment)
business and residential investment (construction of new houses)
includes spending on foreign-produced goods. increases in inventories are included in investment spending
government purchases of G&S
foreign or domestic expenditure
transfers = social security and medicare - not included in GDP according to expenditure approach. interest payments on national debt are NOT counted as part of govt purchases.
net exports
exports-imports
National Income
- compensation of employees
- proprietors’ income
- rental income of persons
- corporate profits
- net interest
- taxes on production and imports
- business current transfer payments
- current surplus of government enterprises
net national product (NNP)
NNP = national income + statistical discrepancy
private disposable income
=Y + NFP + TR + INT - T
= GDP + net factor payments from abroad + transfers received from govt - taxes
net government income
= T - TR - INT
= taxes paid by private sector - payments from the govt to the private sector transfers (TR) - interest payments on the govt debt (INT)
