Module 1 (Introduction + Macroeconomic Accounting) Flashcards
Gross Domestic Product (GDP)
A measure of all currently produced final goods and services evaluated at market prices.
GDP is essentially a measure of output in an economy.
Why are intermediate goods not considered in GDP calculations?
Accounting for intermediate goods results in the “double-counting” of output/value since the prices of intermediate goods are included in the final prices of goods/services.
Accounting for intermediate goods would artificially inflate the GDP, so only final goods and services are included in GDP calculations.
Types of Production-Goods Included in GDP Calculations
- Capital Goods
- Inventory Investment
Capital Goods
Equipment/technology used during the production process of a good that are not completely consumed in the production.
- The amount of a capitol good consumed/used during the prodution process is included in the price of the final good.
- The amount of a capitol good not consumed/used during production is included in investment.
Inventory Investment
The net change in inventories of final goods awaiting sale and/or intermediate goods not yet used.
GDP vs. GNP
- GDP: A measure of the value of final goods/servies produced within a nation’s geographic boundaries (regardless of the citizenship of who owns/produces the good/service).
- GNP:A measure of the output owned/produced by a nation’s citizens (regardless of the location the output is produced).
Gross National Product (GNP)
A measure of the output owned/produced by a nation’s citizens (regardless of where the output is produced).
Whereas GDP includes the within-country earnings of foreign workers/firms, GNP includes the out-of-country earnings of overseas citizens/firms.
What types of activies are not inluded in GDP calculations?
- Nonmarket Activities
- Underground/Illegal Activities
Expenditure Components of GDP
- Consumption (C)
- Investment (I)
- Government Spending (G)
- Net Exports (NX)
GDP: Output Equation
Expenditure Method
Y = C + I + G + NX
Consumption
GDP Measurements
The value of household purchases of final goods/services.
Consumption: Components
GDP Measurements
- Consumer Durable Goods
- Consumer Non-Durable Goods
- Consumer Services
Invesment: Components
GDP Measurements
- Fixed Investment
- Resdential Construction Investment
- Inventory Investment
Government Spending
MIC Calculations
The value of final goods/services that are bought by the government.
Government spending does not include transfer payments or income redistribution.
Net Exports
The difference in value between the gross imports and the gross exports of a country.
- Net Exports (NX) = Exports (X) – Imports (Z)
- Net exports represents the contribution of the foreign sector to the GDP.
Why are intermediate goods accounted for when calculating inventory investment?
Intermediate goods included under inventory investment are goods that are “currently produced” but have yet to become final goods.
Since inventory investment intermediate goods are not included in the price of any final good, not accounting for their value/output would underestimate GDP.
Depreciation
The amount of a capitol good that is used/consumed in the production process of a good.
Why are GDP calculations highly error-prone?
- There is dificulty in determining whether a good/service should be included in GDP calculations.
- There is difficulty in measuring the immense volume of transactions taking place for/within a country.
National Income (NI)
The sum of all factor earnings from the current prodution of goods/services.
(The sum of wages given to laborers, rents paid to capital-owners, and rents paid to landowners.)
- Factors of Production: Land, Labor, Capital
- NI = NNP – Indirect Taxes
Net National Product (NNP)
The amount a country has produced/remaining relative to their status during the previous period.
- NNP represents a country’s gain/loss in produced-quantity over a given time period.
- NNP = GNP – Depreciation
Types of Indirect Taxes
- Value-Added Taxes
- Sales Taxes
- Excise Taxes
Value-Added Tax
Service Tax
A consumption tax on goods/services that is leveled at each stage of production, distribution, or sale.
Excise Tax
A consumption tax imposed on certain manufactured goods.
Why are indirect taxes omitted from National Income calculations?
Indirect taxes create a discrepancy between the price of a good/service on the market and the actual amount paid to factors of production.
Since the government collects indirect taxes, the consumer will be paying more for a good/service than what the factors recieve for producing that good/service.
