EC 151 Ch 10

EC 151 Ch 10 - EC 151 Ch: 10 Measuring a Nation's Income...

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Unformatted text preview: EC 151 Ch: 10 Measuring a Nation's Income The economy's income and expenditure The economy's income and expenditure The measurement of GDP The components of GDP Real vs. Nominal GDP GDP and economic wellbeing Intro Why important to look at nation's income? Economic conditions effect all of us Changes in economic conditions are frequently reported to us Microeconomics Macroeconomics How? To judge whether or not an economy is doing well, it is useful to look at GDP GDP measures: Income of everyone in economy Total expenditure The economy's income and expenditure Total Y=Total expenditure Circular Flow Diagram The measurement of GDP GDP The market value of all final goods and services produced within a country in a given period of time Breakdown of definition Other measures of Y GNP NNP National income Personal income Disposable personal income The components of GDP GDP (Y) can be divided in to 4 components: Consumption (C) Y = C + I + G + NX Investment (I) Government purchases (G) Net exports (NX) Durable vs. Nondurable goods The components of GDP (2001) Government Purchases 18% Net Exports Investment -3 % 16% Consumption 69% Components of US GDP www.bea.doc.gov Real vs. Nominal GDP 2 possible reasons for total spending to rise from one year to the next: When studying GDP over time we want to know if output has changed (not prices) Measure GDP using a fixed set of P Numerical Ex.: The economy may be producing a larger output of goods and services Prices increased Real vs. Nominal GDP Base year GDP deflator GDP deflator = Nominal GDP * 100 Real GDP Base year deflator = 100 A measure of the P level calculated as the ratio of nominal GDP to real GDP * 100 Real GDP over recent history GDP and Economic WellBeing GDP measures both an economy's total income and its total expenditure on goods and services GDP/person tells us the Y and expenditure level of the average person in the economy GDP however may not be a very good representation of wellbeing of an individual Case study: International differences in GDP and quality of life Case study: Who wins at the Olympics? International differences in GDP and quality of life ...
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