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# Measuring Economic Activitya

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• 1. Measuring Economic Activity: National Income ,GDP and Unemployment
• 2. National income
• A broader national level economic measure than is personal income. National income includes payments to individuals (income from wages and salaries, and other income), plus payments to government (taxes), plus retained income from the corporate sector (depreciation, undistributed profits), less adjustments (subsidies, government and consumer interest, and statistical discrepancy).
• 3. Personal income Measures national level income to persons and nonprofit corporations . Personal income includes payments to individuals (income from wages and salaries, and other income), plus transfer payments from government, less employee social insurance contributions
• 4. Disposable personal income
• Measures the after-tax income of persons and nonprofit corporations . It is calculated by subtracting personal tax and nontax payments from personal income.
• 5. Gross Domestic Product: Measuring the Nation’s Output
• Gross Domestic Product ( GDP )
• The market value of the final goods and services produced in a country during a given period
• 6. Gross Domestic Product: Measuring the Nation’s Output
• Market Value
• Market value is used to aggregate the quantities of different goods and services into one measurement
• 7. Gross Domestic Product: Measuring the Nation’s Output
• Market Value
• Calculating GDP for Orchardia
• Total production = 4 apples, 6 bananas, and 3 pairs of shoes
• Price of apples = \$0.25
• Price of bananas = \$0.50
• Price of shoes = \$20
• 8. Gross Domestic Product: Measuring the Nation’s Output
• Market Value
• Calculating GDP for Orchardia
• GDP
• (4 x \$0.25) + (6 x \$0.50) + (3 x \$20) = \$64
• 9. Gross Domestic Product: Measuring the Nation’s Output
• Market Value
• Observation
• More expensive items receive a higher weight than cheaper items.
• Orchardia’s production changes to 3 apples, 3 bananas , and 4 shoes
• GDP
• (3 x \$0.25) + (3 x \$0.50) + (4 x \$20) = \$82.25
• 10. Gross Domestic Product: Measuring the Nation’s Output
• Final Goods or Services
• Goods or services consumed by the ultimate user; because they are the end products of the production process, they are counted as part of GDP
• 11. Gross Domestic Product: Measuring the Nation’s Output
• Intermediate Goods or Services
• Goods or services used up in the production of final goods and services and therefore not counted as part of GDP
• 12. Gross Domestic Product: Measuring the Nation’s Output
• Final Goods and Services
• Milling Co. pays \$0.50 for wheat
• Bakery pays \$1.20 for flour
• Bakery sells bread for \$2.00
• Contribution to GDP = \$2.00
• 13. Gross Domestic Product: Measuring the Nation’s Output
• Final Goods and Services
• Getting a haircut
• Barber charges \$10 for a haircut
• Barber pays his assistant \$2
• Contribution to GDP = \$10
• 14. Gross Domestic Product: Measuring the Nation’s Output
• Capital Good
• A long-lived good, which is itself produced and used to produce other goods and services
• Newly produced capital goods are classified as final goods.
• 15. Gross Domestic Product: Measuring the Nation’s Output
• For any firm, the market value of its product or service minus the cost of inputs purchased from other firms
• 16. Value Added in Bread Production Company Revenues – Cost of purchased inputs = Value added ABC Grain \$0.50 \$0.00 \$0.50 General Flour \$1.20 \$0.50 \$0.70 Hot’n’Fresh \$2.00 \$1.20 \$0.80 Total \$2.00
• The grain and flour are produced in 2005
• Bread is produced in 2006
• \$1.20 is added to 2005 GDP
• \$0.80 is added to 2006 GDP
• 17. Gross Domestic Product: Measuring the Nation’s Output
• Produced Within a Country During a Given Period
• Domestic
• Only production that takes place within a country’s border
• Examples
• Cars produced in the Pakistan by foreign owned companies are counted.
• Cars produced in Japan by Pakistani owned companies are not counted.
• 18. Gross Domestic Product: Measuring the Nation’s Output
• Produced Within a Country During a Given Period
• Given Period
• Counts only goods produced during the defined period such as a calendar year
• Examples
• The sale of used goods is not counted.
• Real estate commissions are counted.
• 19. The Expenditure Method for Measuring GDP
• Consumption Expenditure, or simply Consumption
• Spending by households on goods and services, such as food, clothing, and entertainment
• Consumer durables
• Consumer nondurables
• Services
• 20. The Expenditure Method for Measuring GDP
• Investment
• Spending by firms on final goods and services, primarily capital goods and housing
• Residential investment
• Inventory investment
• 21. The Expenditure Method for Measuring GDP
• Government Purchases
• Purchases by federal, Provencial, and local governments of final goods and services
• Does not include transfer payments
• Does not include interest paid on government debt
• 22. The Expenditure Method for Measuring GDP
• Net Exports
• Exports minus imports
• 23. The Expenditure Method for Measuring GDP
• Y = gross domestic product, or output
• C = consumption expenditure
• I = investment
• G = government purchases
• NX = net exports
• 24.
• GDP
The Expenditure Method for Measuring GDP
• 25. The Expenditure Method for Measuring GDP
• Example
• An economy produces 1 million cars valued at \$15,000 each.
• 26. The Expenditure Method for Measuring GDP
• Production
• GDP = 1 million x \$15,000 = \$15 billion
• 27. The Expenditure Method for Measuring GDP
• Expenditure
• 700,000 sold to consumers
• C = 700,000 x \$15,000 = \$10.5 billion
• I = 200,000 x \$15,000 = \$3.0 billion
• 50,000 sold to government
• G = 50,000 x \$15,000 = \$.75 billion
• 25,000 exported (no imports)
• NX = 25,000 x \$15,000 = \$.375 billion
• 28. The Expenditure Method for Measuring GDP
• Expenditure
• 975,000 sold
• 25,000 inventory
• I = 25,000 x \$15,000 = \$.375 billion
• GDP = C + I + G + NX
• \$10.5 + (3.0 +.375) + .75 + .375 = \$15.0 billion
• 29. GDP and the Incomes of Capital and Labor
• GDP = Labor Income + Capital Income
• Labor income
• Equals 2/3 of GDP
• Includes:
• Wages
• Salaries
• Income of the self-employed
• 30. GDP and the Incomes of Capital and Labor
• GDP = Labor Income + Capital Income
• Capital income
• Equals 1/3 of GDP
• Includes:
• Profits
• Rent
• Interest
• Royalties
• 31. The Three Faces of GDP = = Market value of final goods and services Production Expenditure Income Investment Consumption Government purchases Net exports Capital Income Labor Income
• 32. Nominal GDP versus Real GDP
• Real GDP
• A measure of GDP in which the quantities produced are valued at the prices in a base year rather than at current prices
• Real GDP measures the actual physical volume of production
• 33. Nominal GDP versus Real GDP
• Nominal GDP
• A measure of GDP in which the quantities produced are valued at current-year prices
• Nominal GDP measures the current rupee value of production
• 34. Issues
• GDP excludes non-market economic activity. (Washing your car vs going to the car wash.)
• GDP excludes illegal activity
• GDP doesn’t count “externalities”
• 35. Nonmarket Economic Activities
• Household production
• Volunteer services
• Nonmarket activities are more important in poor countries
• Underground economy
• 36. Environmental Quality and Resource Depletion
• Benefits of environment quality are not measured.
• GDP is not adjusted for resource depletion.
• Poverty and Economic Inequality
• GDP does not capture the effects of income inequality
• 37. Who Is Unemployed?
• All persons who were not classified as employed during the survey reference week, made specific active efforts to find a job during the prior 4 weeks, and were available for work.
• All persons who were not working and were waiting to be called back to a job from which they had been temporarily laid off
• 38. Measuring Unemployment
• Those 18 years and over are placed in one of three categories:
• Employed : People with jobs
• Unemployed : People who are jobless, looking for jobs, and available for work are unemployed.
• Out of the labor force : People who are neither employed nor unemployed are not in the labor force.
• The Bureau of Statistics estimates how many people in the Pakistan fit into each category.
• 39. The Unemployment Rate
• Labor Force
• The total number of employed and unemployed people in the economy
• Unemployment Rate
• The number of unemployed people divided by the labor force
• 40. The Unemployment Rate
• Measuring Unemployment
• Labor force = employed + unemployed
• 41. The Unemployment Rate
• The Cost of Unemployment
• Economic
• Psychological
• Social
• The Duration of Unemployment
• The impact of unemployment is influenced by how long individuals have been unemployed.
• 42. Terminologies
• Frictional unemployment is a term used to describe those who are seeking work but who haven’t yet found the right match.
• Structural unemployment describes those who are unlikely to find work because of some flaw in the economy.