Chapter 24: Measuring Domestic Output and National Income

National income accounting

Measures inflows of income + expenditures for economy as a whole

Gross domestic product (GDP)

Defines aggregate output as the dollar value of all final goods and services produced within the borders of a given country during a given period of time, typically a year

Intermediate goods

Goods and services that are purchased for resale or for further processing or manufacturing

Final goods

Consumption goods, capital goods, and services that are purchased by their final users, rather than for resale or for further processing or manufacturing

Multiple counting

Including both intermediate + final goods; distorts GDP value

Value added

Market value of a firm’s output less the value of the inputs the firm has bought from others

Expenditures approach

Viewing GDP as sum of all money spent in buying it

Personal consumption expenditues

Covers all expenditures by households on durable consumer goods (automobiles, refrigerators, video recorders), nondurable consumer goods (bread, milk, vitamins, pencils, toothpaste), and consumer expenditures for services (of lawyers, doctors, mechanics, barbers)

Gross private domestic investment

Purchases of capital + construction, changes in inventories

Net private domestic investment

Only investment in form of added capital

National income accounting

Measures inflows of income + expenditures for economy as a whole

Gross domestic product (GDP)

Defines aggregate output as the dollar value of all final goods and services produced within the borders of a given country during a given period of time, typically a year

Intermediate goods

Goods and services that are purchased for resale or for further processing or manufacturing

Final goods

Consumption goods, capital goods, and services that are purchased by their final users, rather than for resale or for further processing or manufacturing

Multiple counting

Including both intermediate + final goods; distorts GDP value

Value added

Market value of a firms output less the value of the inputs the firm has bought from others

Expenditures approach

Viewing GDP as sum of all money spent in buying it

Personal consumption expenditures

Covers all expenditures by households on durable consumer goods (automobiles, refrigerators, video recorders), nondurable consumer goods (bread, milk, vitamins, pencils, toothpaste), and consumer expenditures for services (of lawyers, doctors, mechanics, barbers)

Gross private domestic investment

Purchases of capital + construction, changes in inventories

Net private domestic investment

Only investment in form of added capital

Net investment = gross investment

depreciation

Government purchases

(1) expenditures for goods and services that government consumes in providing public services and (2) expenditures for publicly owned capital such as schools and highways, which have long lifetimes

Income approach

Viewing GDP in terms of income derived from producing it

Taxes on production and imports

General sales taxes, excise taxes, business property taxes, license fees, and customs duties

National income

Total of all sources of private income (employee compensation, rents, interest, proprietors income, and corporate profits) plus government revenue from taxes on production and imports

Consumption of fixed capital

Huge depreciation charge made against private and publicly owned capital each year

Personal income

All income received, whether earned or unearned

Disposable income

Personal income less personal taxes

Nominal GDP

GDP based on the prices that prevailed when the output was produced is called unadjusted GDP

Real GDP

GDP that has been deflated or inflated to reflect changes in the price level is called adjusted GDP

Price index

Measure of the price of a specified collection of goods and services, called a "market basket," in a given year as compared to the price of an identical (or highly similar) collection of goods and services in a reference year

Government purchases

(1) expenditures for goods and services that government consumes in providing public services and (2) expenditures for publicly owned capital such as schools and highways, which have long lifetimes

Net exports

Exports - imports

Income approach

Viewing GDP in terms of income derived from producing it

Taxes on production and imports

General sales taxes, excise taxes, business property taxes, license fees, and customs duties

National income

Total of all sources of private income (employee compensation, rents, interest, proprietors’ income, and corporate profits) plus government revenue from taxes on production and imports

Consumption of fixed capital

Huge depreciation charge made against private and publicly owned capital each year

Net domestic product

GDP - consumption of fixed capital (depreciation)

Personal income

All income received, whether earned or unearned

Disposable income

Personal income less personal taxes

Nominal GDP

GDP based on the prices that prevailed when the output was produced is called unadjusted GDP

Real GDP

GDP that has been deflated or inflated to reflect changes in the price level is called adjusted GDP

Price index

Measure of the price of a specified collection of goods and services, called a “market basket,” in a given year as compared to the price of an identical (or highly similar) collection of goods and services in a reference year