Notes on Chapter 12, Section 1, part deux. Continuing discussion of GDP

1. ECONOMICS
April 28, 2015
Chapter 12: Gross Domestic Product
and Growth
Section 12.1B: Gross Domestic
Product

2. OTHER INCOME AND OUTPUT
MEASURES
The GDP is only one of the measures
provided by the NIPA (National Income and
Product Accounts).
While the GDP is the primary measurement
of the economy, other measures derived
from the GDP are more useful.
12.1

3. OTHER INCOME AND OUTPUT
MEASURES
The gross national product (GNP) shows
the income earned by US-owned
companies and US citizens, wherever they
are.
GNP does not use depreciation in its
calculations. However, GNP minus the cost
of depreciation of capital equipment is
called Net National Product (NNP).
12.1

4. OTHER INCOME AND OUTPUT
MEASURES
NNP does not take into account taxes, so
NNP minus sales and excise taxes equals
National Income (NI).
NI minus companies’ reinvested profits,
income taxes & all Social Security taxes,
PLUS other household income equals
Personal Income (PI).
12.1

5. OTHER INCOME AND OUTPUT
MEASURES
PI minus individual income taxes equals
Disposable Personal Income (DPI).
DPI is useful to measure the actual impact
of economic policies on individual citizens.
12.1

7. INFLUENCES ON GDP
Laws of supply and demand on a
nationwide scale are referred to as
aggregate supply and aggregate demand.
Aggregate supply is figured by averaging
the prices in the economy and finding the
comparison to the real GDP.
12.1

8. INFLUENCES ON GDP
Aggregate demand is the amount of goods
and services in the economy that will be
purchased at all possible price levels.
Any shift in the aggregate supply or
aggregate demand will have an impact on
the real GDP and on the price level.
12.1

9. INFLUENCES ON GDP
This, in turn, influences household wealth
(available spendable income) which
influences demand for products.
12.1

10. CHECK QUESTION 12.1B
Write complete question and answer on your Bell Ringer form.
As aggregate demand rises, what
happens to the real GDP? to the price
level?