5 and 6 Flashcards
Three distinct approaches for determining the value of total output
value added, income, expenditure
added value
Adding the difference between revenue minus nonlabor inputs at each stage of production
income
the sum of wages, interest (owners of capital), rent (ppl own land where factory is) and profits (to person that started the company) at each stage of production (recognizes that there are people involved in making these things)
expenditure
The nation’s spending on final goods and services (has to do with national accounts identity)
Notice that transactions not associated with
production (welfare payments, capital gains and losses and the sale of used goods are excluded from GDP)
GDP excludes
deductions for depreciation (“gross” includes depreciation, net does not= net domestic product)
net domestic product
GDP - depreciation (setting aside money for the future)
Gross domestic product
measures the market value of all final goods and services produced within a country’s borders over a given year.
GNP
measures output produced by a country’s residents, regardless of where they produce it
net international factor payments
GDP excludes net income payments from abroad
controlling for inflation
Using prices from a base year avoids the effect of inflation on the calculation of GDP (prices you can trust in the base year)
chained method
Since 1996 the Commerce Department started using a chained method to periodically update the base year (base year get updates- average of different years)
controlling for differences in purchasing power
The PPP index calculates the value of goods and services in each country using the prices of a common country, such as the US
Adjust things because they are pay cheaper in argentina then here
GDP =
C + I + G + EX – IM = C + S + (T - Tr)
(taxes and transfers)
I =
I = S + (T – G – Tr) + (IM – EX)
