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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