Chapter 7: Measuring Domestic Output and National Income Flashcards
National Income Accounting
Operates in much the same way for the economy as a whole
Bureau of Economic Analysis (BEA)
Compiles the National Income (NI) and Product Accounts (NIPA) for the U.S. economy
What does National Income Accounting enable economist and policymakers to do? (3 things)
(1) Access health of economy by comparing levels of production (regular intervals)
(2) Track the long term course of the economy
(3) Formulate policies that will safeguard/improve the economy.
Gross Domestic Product (GDP)
The total market value of all goods and services produced within a given year in the borders of one specific country.
Aggregate Output
Primary measure of the economy’s performance is in annual total output of goods and services
Monetary Measure
GDP is a monetary measure – it compares the relative values of the vast number of goods and services produced in different years
Intermediate Goods
Goods and services that are purchased for resale or for further processing or manufacturing
Final Goods
Goods and services that are purchased for final use by the consumer
Why is the value of final goods included in GDP but the value of intermediate goods excluded?
Because the value of final goods already includes the value of intermediate goods that were used in producing them.
Value Added
Market value of a firm’s output less the value of the inputs of the firm has bought from others
What factors of the economy are not included in GDP?
Non-production Transactions:
(1) Financial Transactions
(a) Public transfer payments - Social Security, welfare, payments
(b) Private transfer payments - no output; money given to a child on christmas
(c) Stock market transactions - the buying and selling of stocks and bonds create nothing in way of current production
(2) Secondhand Sales - selling your car to another person does not generate production
(3) Illegal/Black Market Transactions
(4) Government Purchases
What are two ways at looking at the GDP?
Spending (output/expenditures approach) and Income (allocations/income approach)
Output/Expenditure Approach
The sum of all the money spent in buying a specific good
Allocation/Income Approach
The income derived or created from producing a specific good
Personal Consumption Expenditures (C)
Term that covers all expenditures by households on durable consumer goods (cars) , nondurable consumer goods (bread), and consumer expenditure for services (doctors)
