National Income and National Output

These flashcards cover key concepts of national income accounting, GDP definitions, measurement approaches, and the limitations of GDP.

Gross Domestic Product (GDP)

The market value of all final goods and services produced within a country during a specific period, usually one year.

Final Goods

Goods and services purchased by their ultimate users, counted toward GDP.

Intermediate Goods

Goods purchased for resale or for use in producing another good or service, not counted in GDP.

Current Production

Only the goods and services produced during the specified period.

Real GDP

GDP calculated using constant prices or base year prices, adjusted for changes in the price level.

Nominal GDP

GDP calculated using current year prices, often referred to as money GDP.

Expenditure Approach

One method of measuring GDP based on four components: Consumption, Investment, Government Spending, and Net Exports.

Consumption Expenditure [C]

The total spending by households on durable goods, non-durable goods, and services.

Gross Private Domestic Investment [I]

Refers to the purchase of new capital, including housing, plants, equipment, and inventory.

Government Consumption and Investment [G]

Expenditure by state and local governments for final goods and services.

Net Exports [X-M]

The difference between exports and imports affecting the GDP calculation.

Income Approach

Measures GDP based on income received by individuals and entities rather than on purchases.

National Income

Income from employment, self-employment, profits, and rent.

Depreciation

The loss of value of capital goods over time.

Indirect Taxes

Taxes that affect the income available for consumers, included in the Income Approach.

Subsidies

Financial support extended to production which can be subtracted in the Income Approach.

Output Method

Calculates GDP by adding the value added by different sectors of the economy.

Double Counting

Including the same income multiple times in GDP calculations, which must be avoided.

Nominal vs. Real GDP

Nominal GDP is expressed in current prices, while Real GDP is adjusted for inflation.

Inflation

A rate of increase in prices, impacting the value of nominal GDP.

Human Cost

Costs associated with the workforce's well-being, not captured in GDP.

Natural Disasters and GDP

GDP does not account for productive loss due to disasters, although rebuilding activities are included.

Financial Transactions

Buying and selling of stocks and bonds that do not count towards GDP as they do not involve current production.

Underground Economy

Market transactions that occur outside recorded channels, often to evade taxes.

Non-Market Production

DIY activities not involving market transactions, like mowing the lawn, that are not counted in GDP.

Limitations of GDP

GDP does not measure leisure, non-market activities, or account for losses like national disasters.

Uses of National Income Statistics

To assess total income, wealth improvement, compare economic activities, and inform government planning.

GNP (Gross National Product)

The total market value of all final goods and services produced by a nation's citizens.

Factors Influencing National Income

Aspects like natural resources, labor force, capital investment, and political stability that affect country's income.

Standard of Living

Measure of prosperity which is related to national income and wealth.

Economic Performance Scoreboard

Refers to the National Income accounting system used to assess economic performance.

Treasure Bonds

Financial instruments that are purchased and sold but do not count toward GDP as they involve ownership transfer.

Commission Fees

Fees charged for services rendered, which are counted in GDP.

Social Security Payments

Transfers of income that are excluded from GDP calculations.

Foreign Direct Investment

Investments made by foreign entities in domestic markets, influencing national income.

Wealth Measurement

Using national income statistics to assess the economic well-being of a country.

Consumer Expenditure Trends

Patterns of spending by consumers that can indicate economic health.

Industrial Production Trends

Changes in the output of industries over time.

Geographical Production Scope

Only goods produced within a country's borders count toward its GDP.