GDP

National Income Accounting

measure’s the economy’s overall performance

Gross Domestic Product (GDP)

the primary measure of the economy’s performance as its annual total output of goods and services (aggregate output)

Intermediate Goods

products that are purchased for resale or further processing or manufacturing

Final Goods

products that are purchased by their end users

Expenditures approach

view GDP as the sum of money spent in buying it

Income approach

view GDP in terms of the income derived or created from producing it

GDP formula

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

Personal Consumption Expenditures

all expenditures by households on goods and services

Durable goods

products that have expected lives of three years or more (automobiles, refrigerators)

Nondurable goods

products with less than three years of expected life (ex: food, clothing, and gasoline")

Gross Private Domestic Investment

Final purchases of machinery, equipment, and tools by business enterprises

Net Private Domestic Investment

= Gross investment - depreciation

Personal income

all income received earned or unearned

Disposable income

amount of income leftover after paying personal taxes

Nominal GDP

GDP based on prices when output was produced (unadjusted)

Real GDP

GDP that has been deflated / inflated to reflect changes in price level

Price Index

measure of the price of a specified collection of goods and services

PI in Given Year = ((Price of market basket in specific year) / (Price of same market basked it same year)) x 100

PI = Nominal GDP / Real GDP

Nonmarket activities

certain activities that do not take place in any market (stay at home mons, labor of carpenters who repair their own homes)

Shortcomings of GDP

• Nonmarket activities

• Leisure

• Improved product quality

• The underground economy