Lecture 3: National Income Accounts

Gross Domestic Product

total value of goods and services produced in a country in a given year without any adjustment for the depreciation of capital

Gross Domestic Product

equals sum of income earned domestically by both nationals and foreigners in the country

Nominal GDP

GDP that does not take into consideration changes in price; it is measured in current prices

Real GDP

GDP reflects only production changes

Base Price

remains constant to compare GDP in two years to calculate real GDP

Value-Added Price

used to calculate GDP, either first price and the sum of each difference or the final retail price

Value-Added Price

certain products have high value-added price and increase in GDP is also high

Output

sum of value added in each sector ($4 + $2 + $3 + $5)

Income

sum of payments to factors of production (labor, management, capital in production)

Expenditure

sum of expenditures on final goods and services ($15 final payment for product)

Gross Domestic Product

output produced within a geographic location

Gross National Income

output produced by citizens of a geographic location; must be remitted back to country

Gross Domestic Product

does not include quality of life (life expectancy, literacy rate, infant mortality), underground economic activity (illegal activities, tax avoidance), non-market transactions, and negative consequences of production

Gross Domestic Product

has no strong correlation with the happiness of the people

Human Development Index

simple composite measure of a nations longevity, education, and income and is widely accepted in development discourse