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MeasuringMeasuring
Domestic Output,Domestic Output,
National Income,National Income,
And theAnd the
Price LevelPrice Level
Chapter 6
Pat Yanez, FIT Pat Yanez, FIT
Comparing GDPs
Select Nations GDPs - 2005
United States Japan Germany China United Kingdom France Italy Spain Canada Brazil Korea, Rep. India Mexico Russian Fed. Australia
0 1 2 3 4 5 6 7 8 9 10 12 $12. $4. $2. $2. $2. $2. $1. $1. $1. $. $. $. $. $. $.
GDP in Trillions of Dollars
Pat Yanez, FIT
11 Brazil 792,
10 South Korea 793,
9 Spain 1,126,
8 Canada 1,130,
7 Italy 1,766,
6 France 2,105,
5 United Kingdom 2,201,
4 China 2,224,
3 Germany 2,797,
2 Japan 4,571,
1 United States 12,487,
— European Union 13,446,
— World economy 44,433,
Rank Country GDP
World Largest EconomiesWorld Largest Economies - World Largest Economies - 2005- 2005^2005
US $ Millions
Pat Yanez, FIT
The Importance of Macroeconomic MeasurementThe Importance of Macroeconomic Measurement The Importance of Macroeconomic Measurement
National Income Accounting:
- •Economic Pulse of the NationEconomic Pulse of the Nation
- •Comparisons Over TimeComparisons Over Time
- •Basis For Public PolicyBasis For Public Policy
GDP: the total market value of all final
goods and services produced in the
economy in one year...
1. GDP v/s GNP (1991)
2. A Monetary Measure
3. Avoid Double Counting
4. Excludes Non-Production Transactions
5. Two Sides to GDP: Income or Expenditures
Remember…
Income ApproachIncome Approach
The money income derived from
production of this year’s output
The money income derived from
production of this year’s output
Expenditures Approach Expenditures Approach
Amount spent to purchase this
year’s total output
Amount spent to purchase this
year’s total output
GROSS DOMESTIC PRODUCT...
GROSS DOMESTIC PRODUCT
Consumption
by Households
Investment
by Businesses
Government
Purchases
Expenditures
by Foreigners
Expenditures Approach Income Approach
Wages
Rents
Interest
Profits
Statistical
Adjustments
G
D
P
Pat Yanez, FIT
Expenditures Approach Expenditures Approach
Government Purchases ( G )Government Purchases (Government Purchases ( G ))
Net Exports ( X
n
Net Exports (Net Exports ( X (^) n )))
Personal Consumption Expenditure ( C )
Durables, Non-Durables, Services
Personal Consumption Expenditure (Personal Consumption Expenditure ( C ))
Durables, NonDurables, Non--Durables, ServicesDurables, Services
Gross Private Domestic Investment ( I (^) g )
Machinery. All Construction. Changes in Inventories
Gross Private Domestic Investment (Gross Private Domestic Investment ( I (^) g ))
Machinery. All Construction. Changes in Inventories
C + I g
C + I (^) = GDP g
= GDP
Pat Yanez, FIT
Expenditures Approach Expenditures Approach
C + I g
C + I (^) g + G + X (^) n = GDP= GDP
Personal Consumption ExpenditurePersonal Consumption Expenditure (( C )) $8,746 70%
Gross Private Domestic InvestmentGross Private Domestic Investment (( Ig )) $2,
Government PurchasesGovernment Purchases (( G )) 19%
Net ExportsNet Exports (( Xn )) - 6%
US$ Billions
Pat Yanez, FIT
Expenditure Approach
January 1 Year’s GDP December 31
Consumption & Government Spending
Depreciation
Net
Investment
Gross
Investment
Stock of
Capital
Increased
Stock of
Capital
Gross Investment
Depreciation
Net Investment
=
Pat Yanez, FIT
- Compensation of Employees
- Rents
- Interest
- Proprietors’ Income
- Corporate Profits:
1 1-- Corporate Income TaxesCorporate Income Taxes
2 2-- DividendsDividends
3 3-- Undistributed Corporate ProfitsUndistributed Corporate Profits
- •^ Indirect Business TaxesIndirect Business Taxes
Income Approach Income Approach
- Compensation of Employees…………… $7,
- Rents………………………………………… 73
- Interest………………………………………. 498
- Proprietors’ Income ………………………. 939
- Corporate Profits…………………………… 1,
- Taxes on production & imports………….. 917
National Income………………………. $10,
- •^ Net foreign factor incomeNet foreign factor income^ - - 34^34
- • Statistical discrepancyStatistical discrepancy 4343
- • Consumption of fixed capitalConsumption of fixed capital 1,5741,
Gross Domestic Product:Gross Domestic Product: $12,487$12,
Income Approach Income Approach 2005, US$ Billions
Disposable Income (DI) DI = PI – Income Tax This is personal income (PI) less personal taxes. DI is the amount of income which households have to dispose of as they see fit.
OTHER NATIONAL ACCOUNTS
Net Domestic Product (NDP) NDP = GDP - Depreciation Unlike GDP, This measurement makes an allowance for replacing the capital goods used up in this year’s production. NDP is simply GDP adjusted for depreciation.
National Income (NI) NI = NDP – Foreign Factor A measurement of how much the nation’s resource suppliers earned for the contributions of land, labor, capital, and entrepreneurial talent…
Personal Income (PI) PI = NI – Taxes + Transfer Includes all income received whether earned or unearned. It is likely to differ from national income (income earned) because some income earned--social security taxes (payroll taxes), corporate income taxes, and undistributed corporate profits—is not actually received by household.
