National Income Accounting                  1
Gross Domestic Product           (GDP):• GDP is the market value of all final goods  and services produced in a nation dur...
GDP is the most widely used measureof a nation’s economic performance. GDPis the market value of all final goodsproduced i...
GDP excludes:1. sale of a second hand goods such as   used car or home constructed some   years ago2. intermediate goods3....
Gross National Product (GNP):• GNP measures the market value of all  final goods and services produced by  a nation’s resi...
GNP is the market value of finalgoods and services produced by U.S.residents, no matter where they arelocated. To reflect ...
Intermediate Goods vs. Finished            Goods:• Intermediate goods are goods  and services used as inputs for  producti...
The circular flow model is adiagram representing the flow ofproducts and resources betweenbusinesses and households inexch...
Product             markets              Basic             CircularBusinesses    Flow      Households              Model  ...
Flow vs. StockFlow - A rate of change in a  quantity during a given time  periodStock - A quantity measured at  one point ...
Sectors in a complexCircular Flow Model • Household • Firm • Financial markets • Government • Foreign markets             ...
What Leakages are present in the more  Complex Model?• Household saving• Household taxes paid• Income spent on  imports   ...
What Injections arepresent in the more Complex Model?• Business spending• Government spending• Foreign spending           ...
Methods used to measure GDP?1. Expenditure Approach2. Income Approach3. Product Approach                           14
What is theExpenditure Approach?The national income accounting method that measures GDP by adding all the spending for fin...
The expenditure approach sumsthe four major spending componentsof GDP: consumption, investment,government, and net exports...
What are the four sectors         of GDP?     • Consumption     • Investment     • Government     • Foreign (X - M)GDP = C...
What is theIncome Approach?The method that measures GDP by adding all incomes earned by all FOP in the country            ...
The income approach sums themajor income components of GDP,consisting of compensation ofemployees, rents, profits net inte...
What are the Income  components of GDP?GDP = Compensation of employees + rents + profits + net interest + nonincome adjust...
What areNonincome Adjustments? • Capital consumption   allowances • Indirect business taxes                             21
What are Shortcomings       of GDP?• Nonmarket transactions• Distribution, kind, & quality  of products• Neglect of leisur...
What other national accountsmeasure economic performance? • Net National Product • National Income • Personal Income • Dis...
What is  National Income?NI is the total earned by resource owners, including wages, rents, interest, and profits= NNP(fc)...
National income (NI) is totalincome earned by households and iscalculated as NNP at fc (NNP at mpminus indirect business t...
What is   Personal Income?PI is the total income received by households that is available for consumption, saving, and pay...
Personal income (PI) is the totalincome received by households andis calculated as NI minus corporatetaxes and Social Secu...
What is Disposable   Personal Income?DI is the amount of income that households have to spend or save after payment of per...
Disposable personal income(DI) is personal income minuspersonal taxes. DI is the amount ofincome a household has available...
What is Nominal GDP?The value of all final goods based on the prices existing during the time period of production        ...
Nominal GDP measures allfinal goods and services produced ina given time period of production.                            ...
What is Real GDP?The value of all final goods produced during a given time period based on the prices existing in a select...
Real GDP measures all finalgoods and services produced in agiven time period, valued at theprices existing in a base year....
nominal GDP x 100Real GDP =              GDP price index                                 34
Key Concepts               35
Key Concepts•   Who was Simon Kuznets?•   What is Gross Domestic Product?•   What does GDP measure?•   What is an advantag...
Key Concepts cont.•   What are the four sectors of GDP?•   What is the Income Approach?•   What are the Income components ...
Summary Key Concepts cont.•   What is Personal Income?•   What is Disposable Personal Income?•   What is Nominal GDP?•   W...
Summary          39
Product             markets              Basic             CircularBusinesses    Flow      Households              Model  ...
Net domestic product (NDP) isGDP minus depreciation                                   41
The GDP chain price index is abroad price index used to convertnominal GDP to real GDP. The GDPchain price index measures ...
Chapter 15 Quiz   ©2000 South-Western College Publishing   43
1. The dollar value of all final goods and services  produced within the borders of a nation is the   a. GNP deflator.   b...
2. Based on the circular flow model, money  flows from businesses to households in   a. factor markets.   b. product marke...
3. The circular flow model does not include  which of the following?   a. The quantity of shoes in inventory on     Januar...
4. The expenditure approach measures GDP  by adding all the expenditures for final  goods made by   a. households.   b. bu...
5. GDP is a less-than-perfect measure of the  nation’s economic pulse because it   a. excludes nonmarket transactions.   b...
6. Subtracting an allowance for depreciation  of fixed capital from gross domestic  product yields   a. real GDP.   b. nom...
7. Adding all incomes earned by households  from the sale of resources yields   a. intermediate goods.   b. indirect busin...
8. Personal income equals disposable   income plus    a. personal savings.    b. transfer payments.    c. dividend payment...
9. Disposal personal income   a. is the income people spend for     personal items such as homes and cars.   b. includes t...
10. Which of the following statements is true?   a. Leakages in an economy equal savings plus taxes plus      imports.   b...
11. Gross domestic product data that reflect  actual prices as they exist in a given year are  expressed in terms of   a. ...
12. The GDP chain price index is  a. widely reported in the news.  b. broadly based.  c. adjusted for government spending....
13. Which of the following statements is true?  a. The inclusion of intermediate goods and     services in GDP calculation...
Internet ExercisesClick on the picture of the book,  choose updates by chapter for  the latest internet exercises         ...
END      58
Upcoming SlideShare
Loading in …5
×

National income accounting

2,999 views

Published on

Click Here

http://www.eacademy4u.com/

Online Educational Website For You

0 Comments
5 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
2,999
On SlideShare
0
From Embeds
0
Number of Embeds
3
Actions
Shares
0
Downloads
0
Comments
0
Likes
5
Embeds 0
No embeds

No notes for slide

National income accounting

  1. 1. National Income Accounting 1
  2. 2. Gross Domestic Product (GDP):• GDP is the market value of all final goods and services produced in a nation during a period of time, usually a year• GDP consists of many puzzle pieces to fit together, including markets for products, resources, consumers, workers, and businesses• The most widely reported measure of a nation’s economic performance 2
  3. 3. GDP is the most widely used measureof a nation’s economic performance. GDPis the market value of all final goodsproduced in the U.S. during a period oftime regardless of who owns the factors ofproduction. Secondhand and financialtransactions are not counted in GDP. Toavoid double counting, GDP also does notinclude intermediate goods. GDP iscalculated by either the expenditureapproach or the income approach. 3
  4. 4. GDP excludes:1. sale of a second hand goods such as used car or home constructed some years ago2. intermediate goods3. purely private or public financial transactions such as giving gifts, stocks, bonds, or transfer payments4. transfer payments – payments made not in exchange for goods or services currently produced 4
  5. 5. Gross National Product (GNP):• GNP measures the market value of all final goods and services produced by a nation’s residents, no matter where they are located 5
  6. 6. GNP is the market value of finalgoods and services produced by U.S.residents, no matter where they arelocated. To reflect the increasingintegration of the U.S. into the globaleconomy, the Department ofCommerce changed its emphasis toGDP in 1991. 6
  7. 7. Intermediate Goods vs. Finished Goods:• Intermediate goods are goods and services used as inputs for production of final goods• Finished goods are goods and services produced for the ultimate user 7
  8. 8. The circular flow model is adiagram representing the flow ofproducts and resources betweenbusinesses and households inexchange for money payments.Flows must be distinguished fromstocks. Flows are measured in unitsper time period, for example, dollarsper year. Stocks are quantities thatexist at a given point in timemeasured in dollars. 8
  9. 9. Product markets Basic CircularBusinesses Flow Households Model Factor markets 9
  10. 10. Flow vs. StockFlow - A rate of change in a quantity during a given time periodStock - A quantity measured at one point in time 10
  11. 11. Sectors in a complexCircular Flow Model • Household • Firm • Financial markets • Government • Foreign markets 11
  12. 12. What Leakages are present in the more Complex Model?• Household saving• Household taxes paid• Income spent on imports 12
  13. 13. What Injections arepresent in the more Complex Model?• Business spending• Government spending• Foreign spending 13
  14. 14. Methods used to measure GDP?1. Expenditure Approach2. Income Approach3. Product Approach 14
  15. 15. What is theExpenditure Approach?The national income accounting method that measures GDP by adding all the spending for final goods and services 15
  16. 16. The expenditure approach sumsthe four major spending componentsof GDP: consumption, investment,government, and net exports.Algebraically, GDP = C + I + G +(X-M), where X equals foreignspending for domestic exports andM equals domestic spending forforeign products. 16
  17. 17. What are the four sectors of GDP? • Consumption • Investment • Government • Foreign (X - M)GDP = C + I + G + (X - M) 17
  18. 18. What is theIncome Approach?The method that measures GDP by adding all incomes earned by all FOP in the country 18
  19. 19. The income approach sums themajor income components of GDP,consisting of compensation ofemployees, rents, profits net interestand nonincome expenses fordepreciation and indirect businesstaxes. Indirect business taxes arelevied as a percentage of productprices and include sales taxes,excise taxes, and customs duties. 19
  20. 20. What are the Income components of GDP?GDP = Compensation of employees + rents + profits + net interest + nonincome adjustments 20
  21. 21. What areNonincome Adjustments? • Capital consumption allowances • Indirect business taxes 21
  22. 22. What are Shortcomings of GDP?• Nonmarket transactions• Distribution, kind, & quality of products• Neglect of leisure time• Underground economy• Economic bads 22
  23. 23. What other national accountsmeasure economic performance? • Net National Product • National Income • Personal Income • Disposable Personal Income • Nominal and Real GDP • GDP Chain Price Index 23
  24. 24. What is National Income?NI is the total earned by resource owners, including wages, rents, interest, and profits= NNP(fc) 24
  25. 25. National income (NI) is totalincome earned by households and iscalculated as NNP at fc (NNP at mpminus indirect business taxes plussubsidies) 25
  26. 26. What is Personal Income?PI is the total income received by households that is available for consumption, saving, and payment of personal taxes 26
  27. 27. Personal income (PI) is the totalincome received by households andis calculated as NI minus corporatetaxes and Social Security taxes plustransfer payments, net interest, anddividends. 27
  28. 28. What is Disposable Personal Income?DI is the amount of income that households have to spend or save after payment of personal taxes 28
  29. 29. Disposable personal income(DI) is personal income minuspersonal taxes. DI is the amount ofincome a household has available toconsume or save. 29
  30. 30. What is Nominal GDP?The value of all final goods based on the prices existing during the time period of production 30
  31. 31. Nominal GDP measures allfinal goods and services produced ina given time period of production. 31
  32. 32. 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 32
  33. 33. Real GDP measures all finalgoods and services produced in agiven time period, valued at theprices existing in a base year. 33
  34. 34. nominal GDP x 100Real GDP = GDP price index 34
  35. 35. Key Concepts 35
  36. 36. Key Concepts• Who was Simon Kuznets?• What is Gross Domestic Product?• What does GDP measure?• What is an advantage of using GDP?• Does GDP measure the whole economy?• What are the two approaches we use to measur• What is the Expenditure Approach? 36
  37. 37. Key Concepts cont.• What are the four sectors of GDP?• What is the Income Approach?• What are the Income components of GDP?• What are Nonincome Adjustments?• What are Shortcomings of GDP?• What is Net Domestic Product?• What is National Income? 37
  38. 38. Summary Key Concepts cont.• What is Personal Income?• What is Disposable Personal Income?• What is Nominal GDP?• What is Real GDP?• What is the Chain Price Index? 38
  39. 39. Summary 39
  40. 40. Product markets Basic CircularBusinesses Flow Households Model Factor markets 40
  41. 41. Net domestic product (NDP) isGDP minus depreciation 41
  42. 42. The GDP chain price index is abroad price index used to convertnominal GDP to real GDP. The GDPchain price index measures changesin the prices of consumer goods,business investment, governmentspending, exports, and imports. RealGDP is computed by dividingnominal GDP for year X by year X’sGDP chain price index and thenmultiplying the result by 100. 42
  43. 43. Chapter 15 Quiz ©2000 South-Western College Publishing 43
  44. 44. 1. The dollar value of all final goods and services produced within the borders of a nation is the a. GNP deflator. b. gross national product. c. net national product. d. gross domestic product.D. GDP is the most widely reported measure of a nation’s economic performance. GDP excludes production abroad by U.S. firms. 44
  45. 45. 2. Based on the circular flow model, money flows from businesses to households in a. factor markets. b. product markets. c. neither factor nor product markets. d. both factor and product markets. A. Money flows from household to businesses in product markets. The reverse is true for factor markets. 45
  46. 46. 3. The circular flow model does not include which of the following? a. The quantity of shoes in inventory on January 1. b. The total wages paid per month. c. The percentage of profits paid out as dividends each year. d. The total profits earned per year in the U.S. economy.A. The quantity of shoes in inventory is a stock at one point in time rather than a flow over a period of time. 46
  47. 47. 4. The expenditure approach measures GDP by adding all the expenditures for final goods made by a. households. b. businesses. c. government. d. foreigners. e. all of the above.E. One method national income accountants use to calculate CDP is to add all spending for the four sectors of the economy during a period of time. 47
  48. 48. 5. GDP is a less-than-perfect measure of the nation’s economic pulse because it a. excludes nonmarket transactions. b. does not measure the quality of goods and services. c. does not report illegal transactions. d. all of the above.D. GDP only measures legal market transactions and adjustments for quality changes are very difficult or impossible. 48
  49. 49. 6. Subtracting an allowance for depreciation of fixed capital from gross domestic product yields a. real GDP. b. nominal GDP. c. national income. d. net domestic product.D. Real GDP and nominal GDP include an estimate of depreciation. National income is equal to net national product less indirect business taxes (e.g. sales taxes, federal excise taxes). 49
  50. 50. 7. Adding all incomes earned by households from the sale of resources yields a. intermediate goods. b. indirect business taxes. c. national income. d. personal income.C. Intermediate goods and indirect business taxes have nothing to do with adding incomes. Personal income is the total income received by households. For example, PI includes transfer payments and NI does not. 50
  51. 51. 8. Personal income equals disposable income plus a. personal savings. b. transfer payments. c. dividend payments. d. personal taxes.D. Disposable income is the amount of income that households actually have to spend or save after payment of personal taxes. 51
  52. 52. 9. Disposal personal income a. is the income people spend for personal items such as homes and cars. b. includes transfer payments. c. excludes transfer payments. d. includes personal taxes. B. DPI equals PI minus personal taxes. Since PI includes transfer payments, DPI also includes transfer payments. 52
  53. 53. 10. Which of the following statements is true? a. Leakages in an economy equal savings plus taxes plus imports. b. National income is total income earned by households, whereas personal income is total income received by households. c. Disposable personal income equals personal income minus personal taxes. d. The expenditures approach and the income approach yield the same GDP figure. e. all of the above are true. E. When money leaves the system, a leakage occurs. Personal income is both earned and unearned income. Disposable income is income left over after taxes. Expenditures will always equal income. 53
  54. 54. 11. Gross domestic product data that reflect actual prices as they exist in a given year are expressed in terms of a. fixed dollars. b. current dollars. c. constant dollars. d. real dollars. B. Nominal GDP is also referred to as current dollar or money GDP and is not adjusted for inflation. 54
  55. 55. 12. The GDP chain price index is a. widely reported in the news. b. broadly based. c. adjusted for government spending. d. a measure of changes in consumer prices.B. The GDP chain price index not only measures price changes of consumer goods, but also price changes of business investment, government consumption expenditures, exports and imports. 55
  56. 56. 13. Which of the following statements is true? a. The inclusion of intermediate goods and services in GDP calculations would underestimate our nation’s production level. b. The expenditures approach sums the compensation of employees, rents, profits, net interest, and non-income expenses for depreciation and indirect business taxes. c. Real GDP has been adjusted for inflation or deflation. d. Real GDP equals nominal GDP multiplied by the GDP deflator. C. The word real in front of any term means that the value has been adjusted. 56
  57. 57. Internet ExercisesClick on the picture of the book, choose updates by chapter for the latest internet exercises 57
  58. 58. END 58

×