Lecture 3: National Income Accounts

Gross Domestic Product - total value of goods and services produced in a country in a given year without any adjustment for the depreciation of capital

Gross Domestic Product - equals sum of income earned domestically by both nationals and foreigners in the country

Nominal GDP - GDP that does not take into consideration changes in price; it is measured in current prices

Real GDP - GDP reflects only production changes

Base Price - remains constant to compare GDP in two years to calculate real GDP

Value-Added Price - used to calculate GDP, either first price and the sum of each difference or the final retail price

Value-Added Price - certain products have high value-added price and increase in GDP is also high

Output - sum of value added in each sector ($4 + $2 + $3 + $5)

Income - sum of payments to factors of production (labor, management, capital in production)

Expenditure - sum of expenditures on final goods and services ($15 final payment for product)

Gross Domestic Product - output produced within a geographic location

Gross National Income - output produced by citizens of a geographic location; must be remitted back to country

Gross Domestic Product - does not include quality of life (life expectancy, literacy rate, infant mortality), underground economic activity (illegal activities, tax avoidance), non-market transactions, and negative consequences of production

Gross Domestic Product - has no strong correlation with the happiness of the people

Human Development Index - simple composite measure of a nation’s longevity, education, and income and is widely accepted in development discourse