Chapter 6 Measuring National Output and National Income

national income and product accounts

Data collected and published by the government describing the various components of national income and output in the economy.

gross domestic product (GDP)

The total market value of all final goods and services produced within a given period by factors of production located within a country

final goods and services

Goods and services produced for final use.

intermediate goods

Goods that are produced by one firm for use in further processing or for resale by another firm.

value added

The difference between the value of goods as they leave a stage of production and the cost of the goods as they entered that stage

gross national product (GNP)

The total market value of all final goods and services produced within a given period by factors of production owned by a country’s citizens, regardless of where the output is produced.

expenditure approach

A method of computing GDP that measures the total amount spent on all final goods and services during a given period.

income approach

A method of computing GDP that measures the income—wages, rents, interest, and profits—received by all factors of production in producing final goods and services.

Personal consumption expenditures

Expenditures by consumers on goods and services.

Gross private domestic investment

spending by firms and households on new capital—that is, plant, equipment,inventory, and new residential structures

durable goods

Goods that last a relatively long time, such as cars and household appliances.

nondurable good

Goods that are used up fairly quickly, such as food and clothing.

services

The things we buy that do not involve the production of physical things, such as legal and medical services and education.

nonresidential investment

Expenditures by firms for machines, tools, plants, and so on.

residential investment

Expenditures by households and firms on new houses and apartment buildings.

change in business inventories

The amount by which firms’ inventories change during a period. Inventories are the goods that firms produce now but intend to sell later.

depreciation

The amount by which an asset’s value falls in a given period.

gross investment

The total value of all newly produced capital goods (plant, equipment, housing, and inventory) produced in a given period

net investment

Gross investment minus depreciation.

government consumption and gross investment

Expenditures by federal, state, and local governments for final goods and services.

net exports

The difference between exports (sales to foreigners of U.S.-produced goods and services) and imports (U.S. purchases of goods and services from abroad). The figure can be positive or negative

national income

The total income earned by the factors of production owned by a country’s citizens

compensation of employees

Includes wages, salaries, and various supplements—employer contributions to social insurance and pension funds, for example—paid to households by firms and by the government.

proprietors’ income

The income of unincorporated businesses.

rental income

The income received by property owners in the form of rent.

corporate profits

The income of corporations

net interest

The interest paid by business.

indirect taxes minus subsidies

Taxes such as sales taxes, customs duties, and license fees less subsidies that the government pays for which it receives no goods or services in return.

net business transfer payments

Net transfer payments by businesses to others.

surplus of government enterprises

Income of government enterprises.

net national product (NNP)

Gross national product minus depreciation; a nation’s total product minus what is required to maintain the value of its capital stock.

statistical discrepancy

Data measurement error.

personal income

The total income of households.

disposable personal income or after-tax income

Personal income minus personal income taxes. The amount that households have to spend or save.

personal saving

The amount of disposable income that is left after total personal spending in a given period

personal saving rate

The percentage of disposable personal income that is saved. If the personal saving rate is low, households are spending a large amount relative to their incomes; if it is high, households are spending cautiously.

current dollars

The current prices that we pay for goods and services

nominal GDP

Gross domestic product measured in current dollars.

weight

The importance attached to an item within a group of items.

base year

The year chosen for the weights in a fixed-weight procedure.

fixed-weight procedure

A procedure that uses weights from a given base year.

informal economy

The part of the economy in which transactions take place and in which income is generated that is unreported and therefore not counted in GDP

gross national income (GNI)

GNP converted into dollars using an average of currency exchange rates over several years adjusted for rates of inflation.