econ quiz #2
kentucky79
Tucker.Ch15_LECTURE_SLIDES_EFT_9e.ppt*
Chapter 15
Gross Domestic Product
Lecture Slides
Economics for Today
Irvin B. Tucker
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What is national income accounting?
- The system used to measure the aggregate income and expenditures for a nation
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What is gross domestic product?
- GDP is the market value of all final goods and services produced in a nation during a period of time, usually a year
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What are final goods?
- Finished goods and services produced for the ultimate user
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What are
intermediate goods?
- Goods and services used as inputs for production of final goods
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Does GDP count intermediate goods?
- No, to avoid double counting, GDP only measures final goods and services
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What is an advantage of using GDP?
- GDP measures value using dollars, rather than a list of the number of goods and services
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Does GDP measure secondhand transactions?
- No, current GDP does not include the sale of a used car or the sale of a home constructed some years ago. To include these items would be double counting because they were counted in GDP when they were new.
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What is a
transfer payment?
- A government payment to individuals, not in exchange for goods or services currently produced. Such nonproductive transactions are not counted in GDP.
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Does GDP measure nonproductive financial transactions?
- No, GDP does not count purely private or public financial transactions such as giving gifts, stocks, bonds, or transfer payments
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What is a
circular flow model?
- A model that shows us how all the pieces of the GDP puzzle fit together
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Product
markets
Households
Factor
markets
Businesses
Basic Circular Flow Model
Exhibit 1
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What is the
expenditure approach?
- The national income accounting method that measures GDP by adding all the spending for final goods and services
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What are the four sectors of GDP?
- Consumption
- Investment
- Government
- Foreign (X - M)
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GDP = C + I + G + (X - M)
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Exhibit 2 Gross Domestic Product Using the Expenditure Approach, 2014
National Income Account
Amount
(trillions of dollars)
Percent of GDP
Personal consumption expenditures ( C ) $11.9 69%
Durable goods $1.3
Nondurable goods 2.6
Services 8.0
Gross private domestic Investment ( I ) 2.8 16
Fixed investment 2.7
Change in business inventories 0.08
Government consumption expenditures
and gross investment ( G ) 3.2 18
Federal 1.2
State and local 2.0
Net exports of goods and services (X-M ) - 0.5 - 3
Exports ( X ) 2.4
Imports ( M ) 2.9
Gross domestic product ( GDP ) $17.4 100%
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What is the
income approach?
- The method that measures GDP by adding all incomes
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What are the income components of GDP?
GDP = compensation of employees + rents + profits + net interest + indirect taxes + depreciation
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What is compensation of employees?
- Income earned from wages, salaries, and certain supplements paid to labor
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What is rental income of persons?
- Rent and royalties received by property owners who permit others to use their assets
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What are two income categories?
- Proprietors’ income
- Corporate profits
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What are
corporate profits?
- All income earned by the stockholders of corporations regardless of whether stockholders receive it
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What is net interest?
- Interest earned from loans to businesses
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What are indirect business taxes?
- Taxes levied as a percentage of the prices of goods sold and therefore collected as part of the revenue received by firms
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What is depreciation?
- An allowance for the capital worn out producing GDP
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Exhibit 3 Gross Domestic Product Using the Income Approach, 2014
National Income Account
Amount
(trillions of dollars)
Percent of GDP
Compensation of employees $9.2 53%
Rental income 0.6 3
Profits 3.5 20
Proprietors’ income 1.4
Corporate profits 2.1
Net interest 0.5 3
Indirect business taxes 1.3 8
Depreciation 2.3 13
Gross domestic product (GDP) $17.4 100%
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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Exhibit 5 An International Comparison of GDPs, 2014
GDP (trillions of dollars)
United States
Japan
Germany
China
United Kingdom
India
Canada
Russia
Mexico
$17.4
$10.3
$4.8
$3.8
$2.8
$2.1
$2.1
$1.8
$1.3
Country
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What are
shortcomings of GDP?
- Nonmarket transactions
- Distribution, kind, and quality of products
- Neglect of leisure time
- Underground economy
- Economic bads
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What is a conclusion from the shortcomings of GDP ?
- GDP is a quantitative, rather than qualitative, measure of the output of goods and services
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What other national accounts measure economic performance?
- National Income
- Personal Income
- Disposable Personal Income
- Nominal and Real GDP
- GDP Chain Price Index
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What is
national income?
- NI is the total earned by resource owners, including wages, rents, interest, and profits
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Exhibit 6 National Income Calculated from Gross Domestic Product, 2014
National Income Account
Amount
(trillions of dollars)
Gross domestic product (GDP) $17.4
Depreciation -2.3
National income $15.1
Note: National income is income earned by households
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What is
personal income?
- PI is the total income received by households that is available for consumption, saving, and payment of personal taxes
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Exhibit 7 Four Measures of the Macro Economy
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Exhibit 8 Personal Income Calculated from National Income, 2014
National Income Account
Amount
(trillions of dollars)
National income (NI ) $15.1
Corporate profits -2.1
Contributions for Social Security (FICA) -1.2
Transfer payments and other income 2.9
Personal income ( PI ) $14.7
Note: Personal income is income received by households, including transfer payments.
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What is disposable personal income?
- DI is the amount of income that households have to spend or save after payment of personal taxes
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Exhibit 9 Disposable Personal Income Calculated from Personal Income, 2014
National Income Account
Amount
(trillions of dollars)
Personal income ( PI ) $14.7
Personal taxes -1.7
Disposable personal income ( DI ) $13.0
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What is
nominal GDP?
- The value of all final goods based on the prices existing during the time period of production
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What is real GDP?
- The value of all final goods produced during a given time period based on the prices existing in a selected base year
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What is the
chain price index?
- A measure that compares changes in the prices of all final goods during a given period to the prices of those goods in a base year
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Real GDP =
nominal GDP
GDP chain price index
X 100
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Exhibit 10 Nominal GDP, Real GDP, and the GDP Chain Price Index
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1970 1,076 4,718 22.8
1980 2,862 6,443 44.4
1990 5,980 8,945 66,8
2000 10,290 12,565 81.9
2009 14,418 14,418 100.0
2014 17,419 16,086 108.29
Year
(1)
(2)
(3)
Nominal GDP (billions of dollars)
Real GDP (billions of 2009 dollars)
GDP Chain Price Index (2009 = 100)
Exhibit 10 Nominal GDP, Real GDP, and the GDP Chain Price Index
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