Chapter 7: Measuring Domestic Output an National Income

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National Income Accounting

Measures the economy's performance by measuring the flows of income and expenditures.

What does the Bureau of Economic Analysis do? (4)

1. Complies the National Income and the product account for the US economy
2. Can access the health of the economy
3. Track the longrun course of the economy
4. Formulate policies that will safeguard and improve the economy's health

Aggregate Output

is the primary measure of the economies performance. (measured by the total output of goods and services)

Gross Domestic Product (GDP) (define and show the two ways to measure it)

defines the aggregate output as the dollar value of all of the goods and services produced within a certain country in a given year. There are 2 ways to measure it
1. Expenditure Approach
2. Income Approach

Final Goods

any kind of good and or service produced for their final user, not for resale or further processing

Second Hand Sales

Contribute nothing to current production. Excluded from GDP

Intermediate Goods

includes any goods and services produced for resale or refurbish. Also not included in GDP

Multiple Counting

If value of intermediate goods were included in GDP it would cause this, and it woud distort the overall value

Value Added

the market value of the firms output minus the value of the inputs the firm had brought from others

Two ways to look at GDP

1. Expenditure Approach
2. Income Approach

Expenditure Approach

sum of all money spent in buying it
GDP= C + Ig + G + Xn
C-Consumption: Includes all expenditures on all durable and non-durable goods and services
Ig- Gross Private Domestic Investigation: all final purchase of machinery, equipment and tools by business enterprises, all construction, and any changes in inventory
G- Government Purchases:expenditures for goods and services that government consumes in order to provide public services
Xn- Net Exports: Exports-Imports of goods and services

Price Index

Measure of the price of a specific good or service called a merket basket in a given year as compared to that of another year
[(Price of market basket in specific year)/(price of same market basket in base year)] x 100

8 Income Approaches

1. employee compensation
2. rents, interest
3. proprietor's income
4. corporate profits
5. taxes on production and imports
6. minus net foreign factors
7. statistical discrepancies
8. consumption of fixed capitol

Net Domestic Product (NDP)

GDP - the consumption of fixed capitol

Personal Income

includes all income received whether it was earned or not

Disposable Income

Personal income minus personal taxes. Basically the amount of income left over after paying taxes which is free to be used in either consumption or savings

Unadjusted/Nominal GDP

A GDP bades on prices that prevailed when the output was produced

Adjusted/Real GDP

A GDP that has been deflated or inflated to reflect that changes in the price level

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