Professional Documents
Culture Documents
73-240
Lecture 2
Study GDP
1) Imputation of GDP
2) Three ways of computing GDP
3) What is missing from GDP?
3 Definitions of GDP
Value Added
16287.7
146.2
382.1
275.6
589.3
1942.5
941.8
954.3
426.2
832.6
3226.5
4313.9
2033.7
% of GDP
100
0.90
2.3
1.7
3.6
11.9
5.8
5.9
2.6
5.1
19.8
26.5
12.5
Percent of GDP
10
15
20
25
30
1947
1957
1967
1977
1987
1997
2007
2017
year
Manufacturing
Services
Firm 1 makes tyres. It sells the tyres to Firm 2 for $100. It hires
workers for $80.
Firm 2 buys the tyres. It hires workers for $100. Firm 2 produces
cars and sells cars to domestic households for $300
.
What is the GDP for this economy via the Product Approach?
Consumption
Consumption
Durables
Nondurables
Services
$ billions
11484.3
1249.3
2601.9
7633.2
% of GDP
68.5
7.5
15.5
45.5
7.5
5.0
2.5
0.0
-2.5
-5.0
1960
1970
1980
1990
2000
2010
15
10
-5
-10
-15
2000
2002
2004
2006
2008
2010
2012
2014
Investment Expenditures
Two definitions:
1
Includes
Business fixed investment: Spending on plant and equipment that
firms will use to produce other goods & services.
Residential investment: Spending on housing units by consumers
and landlords.
Inventory investment: The change in the value of all firms
inventories.
30
20
10
-10
-20
-30
1960
1970
1980
1990
2000
2010
Government Expenditure
Government Expenditure
Federal
Non-defense
Defense
State and local
$ billions
2527.7
926.6
305.6
621.0
1601.1
% of GDP
19.1
7.0
2.3
4.7
12.1
Net Export
Net export is the difference between what an economy exports and
imports
N X = exports - imports
If positive, it captures the net expenditure by the rest of the world
on our products
If negative, it captures our net expenditure on what the rest of the
world produces
Percentage of GDP
20
40
60
80
1930
1940
1950
1960
1970
Consumption
Government Purchases
Source: BEA, GDP Release, Table 1.1.5
1980
1990
2000
Investment
Net Exports
2010
Firm 1 makes tyres. It sells the tyres to Firm 2 for $100. It hires
workers for $80.
Firm 2 buys the tyres. It hires workers for $100. Firm 2 produces
cars and sells cars to domestic households for $300
.
What is the GDP for this economy via the Expenditure Approach?
National Income
National Income is the sum of
Compensation of Employees: wages, salaries and fringe
benefits earned by workers (incl. self-employed income)
Proprietors Income: income of non-corporate business, such as
small farms and law partnerships
Rental Income: income that landlords receive from renting,
including the imputed rent that homeowners pay themselves
Corporate Profits: income of corporations after payments to
their workers and creditors
Net interest: interest paid by domestic businesses plus interest
earned from foreigners
in year 1999
Billions of US
$
% of National
Income
National Income
7469.7
100%
Compensation of Employees
5299.8
71.00%
Proprietors' Income
663.5
8.90%
Rental Income
143.4
1.90%
856
11.50%
507.1
6.80%
Corporate profits
Net interest
0.68
0.66
0.64
0.62
0.6
0.58
0.56
0.54
0.52
2009-01-01
2004-01-01
1999-01-01
1994-01-01
1989-01-01
1984-01-01
1979-01-01
1974-01-01
1969-01-01
1964-01-01
1959-01-01
1954-01-01
1949-01-01
1944-01-01
1939-01-01
1934-01-01
1929-01-01
Firm 1 makes tyres. It sells the tyres to Firm 2 for $100. It hires
workers for $80.
Firm 2 buys the tyres. It hires workers for $100. Firm 2 produces
cars and sells cars to domestic households for $300
.
What is the GDP for this economy via the Income Approach?
can be arrived at by three separate means: as the sum of goods and services sold to final
users, as the sum of income payments and other costs incurred in the production of goods
and services, and as the sum of the value added at each stage of production (chart 2.1).
Although these three ways of measuring GDP are conceptually the same, their calculation
may not result in identical estimates of GDP because of differences in data sources,
timing, and estimation techniques.
In summary
Gross output
Less: Intermediate purchases
Personal consumption
expenditures
Compensation of employees
Government consumption
expenditures and gross investment
Net exports
GDP
The sum of final
expenditures
GDI
The sum of income payments
and costs incurred in
production
1. As the sum of goods and services sold to final users. This measure, known as the
Only goods and services that are transacted through markets are
included in GDP.
GDP does not include: Government transfer payments to
individuals. (Social Security, Medicare, unemployment insurance.)
A price
Single price
Price Aggregate (CPI, GDP deflator)
Personal Saving
Flow of Assets
We know GDP is NOT equal to Households Income
Add Net Factor Payments (N F P ), Govt Transfers (T R), Interest
Income on Govt Debt (IN T )
SP
= Y
| + N F P + T{zR + IN T T} C
Private Disposable Income
{z
S G = |T T R {zIN T G}
Government Saving
= I + CA
National Saving
-10
-5
Percent of GDP
0
5
10
15
1930
1940
1950
1960
1970
1980
1990
2000
2010
A bad is a good that the more you have of it, the less happy you
are about it.
GDP measures goods, by definition bads are not included. In
comparing the state of two economies across time and space we
should also consider:
Pollution
Depletion of natural resources
Source OECD.
P90/P10
2.72
3.39
4.21
4.31
5.91
8.53
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