MEASURING NATIONAL OUTPUT AND NATIONAL INCOME
GROSS DOMESTIC PRODUCT (GDP) versus GROSS NATIONAL PRODUCT (GNP) <ul><li>1.GDP   </li></ul><ul><li>  It is the market valu...
<ul><li>2. GNP </li></ul><ul><li>Is the total market value of  all final goods and services  produced within a given perio...
CALCULATING GROSS DOMESTIC PRODUCT (GDP) <ul><li>1.EXPENDITURE APPROACH </li></ul><ul><li>GDP = C + I + G + (EX – IM) </li...
C = PERSONAL CONSUMER EXPENDITURES CATEGORIES <ul><li>1. Durable goods  – goods that last a relatively long time such as c...
I = GROSS PRIVATE DOMESTIC INVESTMENT   <ul><li>TYPES OF INVESTMENT </li></ul><ul><li>1. Gross Private Investment  – total...
<ul><li>GOVERNMENT CONSUMPTION AND INVESTMENT   refers to federal, state and local governments for final goods and service...
<ul><li>2. INCOME APPROACH </li></ul><ul><li>GDP = National Income + Depreciation + (indirect taxes – Subsidies) + Net fac...
A. NATIONAL INCOME <ul><li>Is the total income earned by the factors of production owned by country’s citizen </li></ul><u...
<ul><li>B. DEPRECIATION   is the amount by which asset’s value falls in a given period </li></ul><ul><li>C. INDIRECT TAXES...
GNP AND OTHER NATIONAL INCOME ACCOUNTS <ul><li>NET   NATIONAL PRODUCT </li></ul><ul><li>Gross national product minus depre...
<ul><li>DISPOSABLE PERSONAL INCOME </li></ul><ul><li>Personal income minus personal income taxes </li></ul><ul><li>PERSONA...
GDP, GNP, NNP, National Income, Personal Income and Disposable Income GDP Plus: receipts of factor income from the rest of...
Other Accounts: <ul><li>DEPRECIATION  – normal wear and tear of a specific product by reason of time </li></ul><ul><li>IND...
<ul><li>TRANSFER PAYMENTS  – payments made by the government to people who do not supply goods or services in exchange lik...
NOMINAL VERSUS REAL GROSS DOMESTIC PRODUCT <ul><li>1.NOMINAL GDP </li></ul><ul><li>GDP measured in current price or pesos ...
<ul><li>2. REAL GDP </li></ul><ul><li>Nominal GDP adjusted for price changes is called Real GDP.  </li></ul><ul><li>All th...
A THREE GOOD ECONOMY Production Yr  1  Yr 2 Q1  Q2 Price/ Unit Yr 1  Yr 2 P1  P2 GDP in Yr1 in Yr1  Prices P1 x Q1 GDP in ...
<ul><li>REAL GDP:  Percentage Change </li></ul><ul><li>(19.20-12.10)/12.10 x 100 = .587 x 100 =  58.7 percent </li></ul>
PER CAPITA GDP/GNP <ul><li>A country’s GDP or GNP divided by its population. </li></ul><ul><li>It is a better measure of w...
LIMITATIONS OF THE GDP CONCEPT <ul><li>1.GDP is not always reflective of increases in social welfare </li></ul><ul><li>Exa...
<ul><li>2. GDP seldom reflects losses or social ills. </li></ul><ul><li>GDP accounting rules  DO NOT ADJUST  for productio...
ASSIGNMENT: <ul><li>Group by 5 </li></ul><ul><li>Pick two countries (one first world (ex: USA) and another third world or ...
<ul><li>3. GDP does not measure the effects of redistributive policies </li></ul><ul><li>It does not distinguish between i...
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Gross domestic product and gnp

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Gross domestic product and gnp

  1. 1. MEASURING NATIONAL OUTPUT AND NATIONAL INCOME
  2. 2. GROSS DOMESTIC PRODUCT (GDP) versus GROSS NATIONAL PRODUCT (GNP) <ul><li>1.GDP </li></ul><ul><li> It is the market value for all final goods and services produced within a given period of time by factors of production located within the country . </li></ul><ul><li>a. GDP is concerned only with new and current production . </li></ul><ul><li>b. GDP also excludes output produced abroad by domestically owned factors of production. </li></ul><ul><li>c. Intermediate goods (those goods that are produced by one firm for use in further processing by another firm) are not counted in the GDP. </li></ul>
  3. 3. <ul><li>2. GNP </li></ul><ul><li>Is the total market value of all final goods and services produced within a given period by factors of production owned by a country’s citizens regardless of where the output is produced. </li></ul>
  4. 4. CALCULATING GROSS DOMESTIC PRODUCT (GDP) <ul><li>1.EXPENDITURE APPROACH </li></ul><ul><li>GDP = C + I + G + (EX – IM) </li></ul><ul><li>where: </li></ul><ul><li>C = Personal Consumption expenditures – household spending on consumer goods </li></ul><ul><li>I = Gross Domestic Investment – spending by firms and households on new capital, plant, equipment, inventory and new residential structures </li></ul><ul><li>G = government consumption and investment </li></ul><ul><li>EX – IM = net exports – net spending by rest of the world or exports minus imports </li></ul>
  5. 5. C = PERSONAL CONSUMER EXPENDITURES CATEGORIES <ul><li>1. Durable goods – goods that last a relatively long time such as cars and household appliances </li></ul><ul><li>2. Nondurable goods – goods that are used up fairly quickly such as food and clothing </li></ul><ul><li>3. Services – things we buy that do not involve the production of physical things such as legal and medical services and education </li></ul>
  6. 6. I = GROSS PRIVATE DOMESTIC INVESTMENT <ul><li>TYPES OF INVESTMENT </li></ul><ul><li>1. Gross Private Investment – total investment in capital, it is the purchase of new housing, equipment and plants by private sector </li></ul><ul><li>2. Nonresidential Investment – expenditures by firms for machines, tools, plants and so on </li></ul><ul><li>3. Residential Investment – expenditures by firms and on new houses and buildings </li></ul><ul><li>4 . Change in Business Inventories – amount by which firms inventories change during a period, inventories are goods that firms produce now but intend to sell later </li></ul>
  7. 7. <ul><li>GOVERNMENT CONSUMPTION AND INVESTMENT refers to federal, state and local governments for final goods and services. </li></ul><ul><li>NET EXPORTS (EX – IM) is the difference between exports and imports, figure can be negative or positive </li></ul>
  8. 8. <ul><li>2. INCOME APPROACH </li></ul><ul><li>GDP = National Income + Depreciation + (indirect taxes – Subsidies) + Net factor payments to the rest of the world </li></ul>
  9. 9. A. NATIONAL INCOME <ul><li>Is the total income earned by the factors of production owned by country’s citizen </li></ul><ul><li>a. Compensation of employees – includes wages, salaries and various supplements </li></ul><ul><li>b. Proprietor’s income – income of unincorporated businesses </li></ul><ul><li>c. Corporate profits – income of corporate businesses </li></ul><ul><li>d. Net interest – interest paid by business </li></ul><ul><li>e. Rental income – income received by property owners in from of rent </li></ul>
  10. 10. <ul><li>B. DEPRECIATION is the amount by which asset’s value falls in a given period </li></ul><ul><li>C. INDIRECT TAXES are taxes like sales tax, customs duties and license fee </li></ul><ul><li>D. SUBSIDIES are payments made by the government for which it receives no goods or services in return </li></ul><ul><li>E. NET FACTOR PAYMENTS TO THE REST OF THE WORLD payments of factor income to the rest of the world minus receipt of factor income from the rest of the world </li></ul>
  11. 11. GNP AND OTHER NATIONAL INCOME ACCOUNTS <ul><li>NET NATIONAL PRODUCT </li></ul><ul><li>Gross national product minus depreciation; a nation’s total product minus what is required to maintain the value of its capital stock </li></ul><ul><li>PERSONAL INCOME </li></ul><ul><li>The income received by households after paying social insurance taxes but before paying personal income taxes. </li></ul>
  12. 12. <ul><li>DISPOSABLE PERSONAL INCOME </li></ul><ul><li>Personal income minus personal income taxes </li></ul><ul><li>PERSONAL SAVING </li></ul><ul><li>The amount of disposable income that is left after total personal spending in a given period </li></ul><ul><li>PERSONAL SAVING RATE </li></ul><ul><li>Percentage of disposable personal income that is saved. If personal saving rate is low households are spending a large amount relative to their incomes, if it is high households are spending cautiously. </li></ul>
  13. 13. GDP, GNP, NNP, National Income, Personal Income and Disposable Income GDP Plus: receipts of factor income from the rest of the world Less: payments of factor income to the rest of the world Equals: GNP Less: depreciation Equals: NNP Less: indirect taxes minus subsidies plus other Equals: National Income Less: corporate profits minus dividends Less: social insurance payments Plus: personal interest income received from government and consumers Plus: transfer payments to persons Equals: personal income Less: personal taxes Equals: disposable personal income
  14. 14. Other Accounts: <ul><li>DEPRECIATION – normal wear and tear of a specific product by reason of time </li></ul><ul><li>INDIRECT TAXES- tax imposed on goods before they reach the customer who ultimately pays for them not as tax but as part of the purchase price like sales tax </li></ul><ul><li>SUBSIDIES - payments made by the government for which it receives no goods or services in return </li></ul>
  15. 15. <ul><li>TRANSFER PAYMENTS – payments made by the government to people who do not supply goods or services in exchange like welfare payments </li></ul><ul><li>SOCIAL INSURANCE PAYMENTS – taxes levied at a flat rate on wages and salaries, proceeds support government-administered social benefit programs including SSS and unemployment benefits system </li></ul>
  16. 16. NOMINAL VERSUS REAL GROSS DOMESTIC PRODUCT <ul><li>1.NOMINAL GDP </li></ul><ul><li>GDP measured in current price or pesos – all components of GDP valued at their current prices. </li></ul><ul><li>Example: Burger </li></ul><ul><li>Year 1 – (Price = 20pesos, Quantity = 100pcs) </li></ul><ul><li>Year2 – (Price = 30pesos, Quantity = 100pcs) </li></ul>
  17. 17. <ul><li>2. REAL GDP </li></ul><ul><li>Nominal GDP adjusted for price changes is called Real GDP. </li></ul><ul><li>All the main issues in computing real GDP can be discussed using the simple three-good economy for 2 years provided by the table below. </li></ul>
  18. 18. A THREE GOOD ECONOMY Production Yr 1 Yr 2 Q1 Q2 Price/ Unit Yr 1 Yr 2 P1 P2 GDP in Yr1 in Yr1 Prices P1 x Q1 GDP in Yr2 in Yr1 Prices P1 x Q2 GDP in Yr 1 in Yr 2 Prices P2 x Q1 GDP in Yr 2 in Yr 2 Prices P2 x Q2 Good X 6 11 .50 .40 3.00 5.50 2.40 4.40 Good Y 7 4 .30 1.00 2.10 1.20 7.00 4.00 Good Z 10 12 .70 .90 7.00 8.40 9.00 10.80 12.10 nominal GDP in Yr 1 15.10 Real GDP in Yr2 18.40 Real GDP in Yr1 19.20 nominal GDP in Yr 2
  19. 19. <ul><li>REAL GDP: Percentage Change </li></ul><ul><li>(19.20-12.10)/12.10 x 100 = .587 x 100 = 58.7 percent </li></ul>
  20. 20. PER CAPITA GDP/GNP <ul><li>A country’s GDP or GNP divided by its population. </li></ul><ul><li>It is a better measure of well-being for the average person than total GDP or GNP. </li></ul><ul><li>NOTES: Switzerland has the highest per capita GNP of $40,630, followed by Japan $39,640 and Norway $31,250. </li></ul><ul><li>Philippines has a per capita GDP/GNP of $1,050. </li></ul><ul><li>Mozambique has a per capita GDP/GNP of $80. </li></ul>
  21. 21. LIMITATIONS OF THE GDP CONCEPT <ul><li>1.GDP is not always reflective of increases in social welfare </li></ul><ul><li>Example: </li></ul><ul><li>a. Decrease in crime rate – not considered as increase in output and is not reflected in GDP </li></ul><ul><li>b. Increase in leisure – may be associated with decrease in GDP (less time is spent on producing output) </li></ul>
  22. 22. <ul><li>2. GDP seldom reflects losses or social ills. </li></ul><ul><li>GDP accounting rules DO NOT ADJUST for production that POLLUTES the environment. </li></ul><ul><li>Thus: </li></ul><ul><li>THE MORE PRODUCTION there is, the LARGER the GDP, regardless of how much pollution results in the process. </li></ul>
  23. 23. ASSIGNMENT: <ul><li>Group by 5 </li></ul><ul><li>Pick two countries (one first world (ex: USA) and another third world or developing country (ex: Philippines) </li></ul><ul><li>Look into their GDP and GNP for the past 10 years (cite sources) </li></ul><ul><li>Use current and constant figures </li></ul><ul><li>Give one paragraph analysis of their trends and identify factors contributing to their output growth. </li></ul>
  24. 24. <ul><li>3. GDP does not measure the effects of redistributive policies </li></ul><ul><li>It does not distinguish between in which most output goes to a few people and the case in which output is evenly divided among all people. </li></ul><ul><li>4. GDP is also neutral about the kinds of goods an economy produces </li></ul>

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