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National Income
accounting
What is GDP?
It is the nations expenditure on all the final goods
and services produced during the year at market
prices.
An alternate definition:
GDP is the value of all the final goods and
worth a dollar.
Some
of the dollar is
profit/proprietor
some
some
some
It
Used Goods
GDP measures the value of currently produced
total
out of inventory?
This case is much like the sale of a used good.
There is spending by bread consumers, but there is
double counting.
One way to compute the value of all final goods and
the economy.
GDP.
In many cases, an imputation is called for in principle but,
These
2006
Q
Birr 30 900
2007
Q
Birr 31 1000
Compute
GDP
Goodnominal
Birr
192 in each
Birr year.
200
B
100
102
Birr 36 1050
100
205
RGDP
GDP
deflator
Inflation
rate
2005
Birr 46,200
Birr 46,200 ?
n.a
2006
Birr 51,400
Birr 50,00
2007
Birr 58,300
Birr 52,000 ?
year.
Use GDP deflator to compute the inflation rate from 2005 to 2006,
and from 2006 to 2007.
Compute CPI
Basket: 20 pizza, 10 CDs
Prices:
Pizza
CDs
2005
Birr 10
Birr 15
2006
Birr 11
Birr 15
2007
Birr 12
Birr 16
2008
Birr 13
Birr 15
weights.
Unmeasured changes in quality:
Quality improvements increase the value of the dollar but
Aggregate
expenditu
re
Investment,
I
Government spending, G
Net exports, NX
An important identity:
Value of total
output
Y=C+I+G
+ NX
Consumption (C)
The value of all goods and services bought by households.
Includes:
o Durable goods : last a long time
e.g., cars, home appliances
o Nondurable goods: last a short time
e.g., food, clothing
o Services: intangible items purchased by consumers
e.g., dry cleaning, air travel
Investment (I)
Spending on capital, a physical asset used in future production .Includes:
o Business fixed investment: Spending on plant and equipment
o Residential fixed investment: Spending by consumers on housing
o Inventory investment: The change in the value of all firms inventories
Government spending (G)
G includes all government spending on goods and services.
G excludes transfer payments (e.g., unemployment insurance
payments), because they do not represent spending on goods and
services.
Payments to Abroad.
To obtain net national product (NNP), we subtract the
Personal
Income
Corporate Profits
Social Insurance Contributions
Net Interest
+Dividends
+Government Transfers to Individuals
+Personal Interest Income.
Next, if we subtract personal tax payments and certain
nontax payments to the government (such as parking
tickets), we obtain disposable personal income:
Disposable Personal Income
=Personal Income Personal Tax and
Nontax Payments.
capacity utilization.
Output is not always at its trend level, that is, the
level corresponding to full employment of the
factors of production.
Rather output fluctuates around the trend level.
During expansion (or recovery) the employment
of factors of production increased, and that is a
source of increased production.
Conversely, during a recession unemployment
increases and less output is produced than can in
fact be produced with the existing resources and
technology.
Deviations of output from trend are referred to as
the output gap.
Okuns Law
A relationship between real growth and changes in the
The End