TAILIEUCHUNG - Lecture Economics (19/e) - Chapter 24: Measuring domestic output and national income

After reading this chapter, you should be able to: Explain how gross domestic product (GDP) is defined and measured; describe the relationships among GDP, net domestic product, national income, personal income, and disposable income; discuss the nature and function of a GDP price index, and describe the difference between nominal GDP and real GDP; list and explain some limitations of the GDP measure. | Measuring Domestic Output and National Income McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. National Income Accounting measures economy’s overall performance Bureau of Economic Analysis compiles National Income and Product Accounts Assess health of economy Track long run course Formulate policy Assessing the Economy’s Performance LO1 24- Gross Domestic Product Measure of aggregate output Monetary measure Avoid multiple counting Market value final goods Ignore intermediate goods Count value added LO1 24- Gross Domestic Product Exclude financial transactions Public transfer payments Private transfer payments Stock (and bond) market transactions Exclude second hand sales Sell used car to a friend LO1 24- Two Approaches to GDP Income approach Count income derived from production Wages, rental income, interest income, profit Expenditure approach Count sum of money spent buying the final goods Who buys the goods? LO2 24- G D P = = + Consumption by Households Investment by Businesses Government Purchases Expenditures By Foreigners + + + + + Wages Rents Interest Profits Statistical Adjustments + Two Approaches to GDP Expenditures or Output Approach Income or Allocations Approach LO2 24- Expenditures Approach Personal consumption expenditures (C) Durable consumer goods Nondurable consumer goods Consumer expenditures for services Domestic plus foreign goods produced LO2 24- Expenditures Approach Gross private domestic investment (Ig) Machinery, equipment, and tools All construction Changes in inventories Creation of new capital assets Noninvestment transactions excluded LO2 24- Expenditures Approach Government purchases (G) Expenditures for goods and services Expenditures for publicly owned capital Excludes transfer payments Net exports (Xn) Add exported goods Subtract imported goods Xn = exports – imports GDP = C + Ig + G + Xn LO2 24- Compensation Rents Interest Proprietor’s Income Corporate .

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