Better Chapter 8

National Income Accounting

National Output (Aggregate Output)

National Income

Three Ways to Measure the Value of National Output

• Expenditure approach

• Income approach

• Output approach

Expenditure Approach

Income Approach

Output Approach

4 Components of Total Spending

• Consumption spending (C)

• Investment spending (I)

• Government spending (G)

• Net exports (X-M)

Consumption Spending (Consumption for Short)

Investment Spending (Investment for Short)

Government Spending

Net Exports

Gross Domestic Product (GDP)

GDP = C + I + G + (X - M)

Gross National Income (GNI)

Difference Between GDP and GNI

GDP = The total value of all final goods and services produced within a country over a time period (usually a year), regardless of who owns the factors of production.

While

GNI = The total income received by the residents of a country, equal to the value of all final goods and services produced by the factors of production supplied by the country's residents, regardless of where the factors are located.

Nominal Value

Real Value

Nominal GDP / GNI

Real GDP / GNI

GDP Per Capita

Per Capita

Purchasing Power Parities (PPPs)

Calculating GDP

GDP = C + I + G + (X - M)

Calculating GNI

GNI = GDP + income from abroad - income sent abroad

or

GNI = GDP + net income from abroad

Price Deflator (GDP Deflator)

Can be used to calculate real GDP:

real GDP =

Business Cycle

Short-Term Fluctuations

Phases of Each Business Cycle

- Expansion

- Peak

- Contraction

- Trough

Expansion

Peak

Contraction

Recession

Trough

Long-Term Growth Trend

Business Cycle Diagram

Potential Output

Full Employment

GDP Gap (Output Gap)

Natural Rate of Unemployment

Illustrating Actual Output, Potential Output and Unemployment in the Business Cycle

Three Macroeconomic Objectives

Illustrating Three Macroeconomic Objectives

National Income Statistics

OECD Better Life Index

Happiness Index

Happy Planet Index