Chapter 7: Measuring Domestic Output And National Income Flashcards
Aggregate accounting
- national income accounting
- set of rules and definitions for measuring economic activity in the whole Economy
Aggregate accounting measures…
Aggregate production, expenditure, and income
GDP
Total market value of all final goods and services produced in an economy in a one year period
Expenditure categories of GDP
1- consumption
2- investment
3- government spending
4- net exports
Net exports
Spending on exports minus spending on imports
X-M
GDP=
C+I+G+(X-M)
Flow concept
- I.e. Gdp
- the market value of total final output a country produces per year
Stock concept
- I.e. Wealth accounts
- balance sheet of an economy’s assets and liabilities
GDP counts final output but not…
Intermediate goods
Final output
Goods and services purchased for final use
Intermediate products
Used as an input in the production of some other product
Counting the sale of both final and intermediate goods would result in…
Double counting
Two ways of eliminating intermediate goods
1- calculate only final output
2- follow the value added approach
Value added approach
- Increase in value that a firm contributes to a product or service
- calculated by subtracting intermediate goods (cost of materials that a firm uses to produce) from the value of its sales
What’s counted in GDP?
- Value added by a used car dealer
- commissions paid to stock brokers
What’s not counted in GDP?
- value of resale goods
- sales of stocks or bonds
- government transfer payments
- work of house-spouses
Ndp
- GDP adjusted for depreciation
- measures output available for purchase
Depreciation
Amount of capital used up in producing that years gdp
NDP=
C+I+G+(X-M)-Depreciation
Net investment
Gross investment minus depreciation
GNP
- Aggregate final output of citizens and businesses of an economy in one year
- output produced by a country’s citizens
GNP=
GDP+ net foreign factor income
Net foreign factor income
Income from foreign domestic factor sources minus foreign factor income earned domestically
Aggregate income consists of
- employee compensation
- rent
- interest
- profits
Aggregate income=
Aggregate production
Profit makes income side=
Expenditure side
Nominal GDP
GDP calculated at current prices
GDP deflator
Nominal GDP/real GDP x 100
Real GDP
Nominal GDP adjusted for inflation
Real GDP=
Nominal GDP/GDP deflator x 100
Nominal interest rate
Rate you pay or receive to borrow or lend money
Real interest rate
Nominal interest rate adjusted for inflation
Real interest rate=
Nominal interest rate-inflation rate
Real wealth
Value of productivity capacity of the assets of an economy measured by the goods and services it can produce now and in the future
Nominal wealth
Value of these assets measured in current prices
Asset price inflation
A rise in the price of assets unrelated to increases in their productive capacity
Limitations of aggregate accounting
- due to differences in nonmarket activities and difference in product prices, per capital GDP may be a misleading measure of living standards
- GDP measures economic activity not welfare
- measurement problems
- subcategories are often interdependent
Purchasing power parity
Method of comparing income that takes the different relative prices among countries into account
Genuine progress indicator (gpi)
Makes a variety of adjustments to GDP to better measure the progress of society rather than just economic activity
-includes social goals
