Macroeconomics Chapter 6

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The market value of all goods and services produced in any particular year within a country.
Expenditure Approach
Measures the value of the goods and services people buy. (total the value of the items of production)
Income Approach
Measures the incomes that are generated in the production of that output.
Measuring GDP
1. Only final goods and services are counted.
2. Work in progress and inventory on hand at the end of the year is counted for that year. Inventory at the beginning of the year is subtracted from that year.
3. Usually only counts a single year (for time period).
Consumption, Investment, Government
Three major groups of expenditures:
Consumption Expenditures
Expenditures by consumers for durable goods, non durable goods, and for services.
Investment Expenditures
Gross private domestic capital used to create activities that are private in a domestic economy.
Government Expenditures
Purchases of goods and services by all levels of government.
Net Exports
– Imports not included in GDP because they are not produced in the USA.
– Imports are subtracted from exports, which are produced in the USA.
– These are added into GDP.
Output Excluded from GDP
– Services by homemakers
– Illegal goods and services.
– Labor of children in the household.
– Labor in do-it-yourself projects.
– Volunteer help to non-profit organizations.
Gross Domestic Income (GDI)
– Measures the total income at market prices generated in the production of all final goods and services during a given period.
– Shows the income generated by GDP output.
Measuring GDI
– Wages and Salaries (W)
– Rent (R)
– Interest Profits (Pc)
– Profits (P)
– Capital Consumption Allowance (D)
– Indirect Business Taxes (T)
– Net Factor Income From Abroad (Ynet)
– Wages and Salaries – payment for labor (W)
– Rent – payment to owners of land (R)
– Interest – paid to owners of capital (Pc)
– Profit – payment to entrepreneurship (P)
– Capital Consumption Allowance (D)
– Indirect Business Taxes (T)
Indirect Business Taxes
Taxes on goods and services that are passed on to consumers.
Net Factor Income From Abroad
Calculated from income received from factors of production in other nations subtracting income paid to foreign owned factors of production in the US.
Calculating GDP
= W + R + Pc + P + D + T + Yn
Gross National Product (GNP)
Measures the current value of output from the use of factors of production used by a country’s residents. (Even if it was produced outside of that country)
Economic Transactions Excluded From GDP
– Buying and selling of intermediate products
– Buying and selling of used items
– Buying and selling of financial securities (such as stocks and bonds)
Net National Product
– Net dollar value of all final goods and services produced over a period of time.
– Does not include depreciation (unlike GNP)
= C + In + G + Xn
Net National Income
– Income at market prices that is generated in producing all final goods and services over a period of time.
– Depreciation is not included.
Final Value Method
Only the prices of goods sold to final users are added.
Value Added Method
The values added at each stage of production and summed.
Categories: Macroeconomics