Chap. 2 - National lncome Accounting Flashcards
What is National Income Accounting?
The methodology used in measuring the total output and income of the economy.
What is GDP?
The Gross Domestic Product (GDP) is the value of all the final goods and services produced in the domestic economy in a given year.
What are the two different ways to calculate GDP?
- By adding up all that is spent to buy this year’s output (the expenditures approach)
- By summing up all the incomes derived from the production of this year’s output (the income approach)
What are the four possible uses for the output of an economy in a given year?
Output in an economy can be purchase by private households (C), businesses (I), government (G), or the foreign sector (NX).
Y = C + I + G + NX
What is C?
The total payment made by households on consumption goods and services is called consumption expenditures
What is I?
The purchase of new plants, equipment, buildings, new homes, and additions to inventories is called investment expenditures
What is G?
Government purchases of finished products of businesses and all direct purchases of resources are called government expenditures
What is NX?
The expenditure by the rest of the world on goods and services produced by domestic firms (exports) minus the US expenditures on goods and services produced by the rest of the world (imports) is called net exports
Personal Consumption 3,657 Depreciation 400 Wages 3,254 Indirect Business Taxes 500 Interest 530 Domestic Investment 741 Government Expenditures 1,098 Rental Income 17 Corporate Profits 341 Exports 673 Net Foreign Factor Income 20 Proprietor’s Income 403 Imports 704 Calculate GDP
Y = C + I + G + NX Y = 3,657 + 741 + 1,098 + (673 – 704) Y = 3,657 + 741 + 1,098 – 31 Y = 5,465
The Income Approach, National Income is comprised of what five factors?
Wages, Rent, Interest, Proprietor’s Income, and Corporate Profits
To go from National Income to GDP what must be considered?
To go from National Income to GDP you must add in the value of production that is never received as income by a factor of production. This is done by adding Indirect Business Taxes (sometimes called sales taxes), Depreciation (the value of the capital that is used up by producing the output of the economy), and Net Foreign Factor Income (NFFI) to National Income.
The final Income Approach to the GDP is what equation?
Y = National Income + Indirect Business Taxes + Depreciation + NFFI
Personal Consumption 3,657 Depreciation 400 Wages 3,254 Indirect Business Taxes 500 Interest 530 Domestic Investment 741 Government Expenditures 1,098 Rental Income 17 Corporate Profits 341 Exports 673 Net Foreign Factor Income 20 Proprietor’s Income 403 Imports 704 Calculate National Income, then GDP using the Income Approach
National Income = Compensation to Employees (Wages) + Rents + Interest + Proprietor’s Income + Corporate Profits
National Income = 3,254 + 17 + 530 + 403 + 341 = 4,545
Y = National Income + Indirect Business Taxes + Depreciation + NFFI
Y = 4,545 + 500 + 400 + 20 = 5,465
What are the three ways GDP can rise?
GDP can rise from one year to the next for one of three reasons: either because the economy has produced more from one year to the next, because the value of the product has gone up from year to year, or both.
What is Nominal GDP?
Nominal GDP measures the value of the output of final goods and services using current dollar prices. It is the value of a given year’s output using the dollar prices that prevailed in that given year (referred to as current dollar prices).