ECON1001 - Topic 3 - National Income Accounts

Key Concepts

Gross Domestic Product
Gross National Income
Real and Nominal Measures
Human Development Index

Gross Domestic Product (GDP)

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

GDP equals

the sum of income earned domestically by both nationals and foreign citizens working in the country.

Nominal GDP

changes due to changes in productions and changes in prices. It is measured in current prices.

Real GDP

reflects only production changes in the economy by using constant prices. So, it is measured in constant prices

Measures of Output

• Output
  - Sum of value added in each sector

• Income
  - Sum of payments to factors of production*

  • Expenditure
    - Sum of expenditures on final goods and
    services

INCOME = EXPENDITURE

True or False

Cycle

Goods and Services - > HouseHolds → Labor and Capital → Firms → Goods and Services

GDP (Gross Domestic Product)

Output produced within a geographic location
(US, Italy, etc.)

GNI (GNP) – Gross National Income
(Product)

• Output produced by citizens of a geographic
  region

  • Value must be remitted back to country

Underground economic activity

• Illegal activities

• Tax avoidance

Measurements are incomplete due to

• Underground economic activity

• Non-market transactions

• Negative consequences of production

Summary

Need for consistent set of data

• Real and Nominal Variables

• GDP and GNI

• Value added = Income = Total Expenditure

• Human Development Index