NationalAccount

NationalAccount - 1 GSBA 526 Global Economics National...

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Unformatted text preview: 1 GSBA 526 - Global Economics National Income and Balance of Payments Accounts Common terms z It is common to use terms such as Gross Domestic Product, National Income, Private Savings, Balance of Payments , etc . z These terms are widely used for evaluating the performance of an economy and to compare different economies. z But what is the exact content of these terms? 2 Measuring economic activity z Definition of GDP and its measurement – Production approach – Expenditure approach – Income approach z Inflation z Saving z Current Account z Government Budget Gross Domestic Product (GDP) z The market value of final goods and services newly produced within the geographical boundary of a country in a particular period of time (month, quarter, year). 3 Three ways to measure GDP 1. Production (Value Added) Approach – The total amount of output produced, excluding output used up in intermediate stages of production. 2. Expenditure Approach – The total amount spent by the ultimate purchasers of output. 3. Income Approach – The total income received by producers of output. Example Two companies: OrangeInc and JuiceInc z OrangeInc Transactions – Wages paid to employees 15,000 – Taxes paid to government 5,000 – Revenues from sales of oranges 35,000 Oranges sold to JuiceInc 25,000 Oranges sold to public 9,000 Oranges sold to government 1,000 z JuiceInc Transaction – Oranges purchases from OrangeInc 25,000 – Wages paid to employees 10,000 – Taxes paid to government 2,000 – Revenues from sales of orange juice 40,000 Juice sold to public 34,000 Juice sold to government 6,000 4 Production approach (Value added from different sectors) 5 10 15 20 25 30 35 1946 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 Agriculture, Fishing, Mining Construction and utilities Manufacturing Commerce Services Finance and insurance Government Expenditure approach Y = C + I + G + NX z Y: Gross Domestic Product z C: Private consumption z I: Private investment z G: Government Purchases (consumption and investment) z NX: Net Exports (Exports – Imports) 5 Expenditure breakdown for the US 1963 2006 Private consumption 62.0% 69.9% Durables 8.4 7.9 Nondurables 27.2 20.4 Services 26.4 41.6 Private investment 15.2% 16.7% Business 9.1 10.6 Residential 5.2 5.8 Inventory 0.9 0.3 Gov. Purchases 22.1% 19.1% Net Exports 0.8% -5.7% 6 Income Approach (Compensation of production factors) National Income = Compensation employees + Proprietor’s Income + Rental Income + Corporate Profits + Net Interest z Employee Compensation Wages and benefits paid to employees z Proprietor’s Income Income of the self-employed (labor + capital income) z Individual Rental Income Income earned by renting out land or structures z Corporate Profits = Corporate Revenue - wages - interest - rents - other costs z Net Interest =Interests earned - Interests paid by individuals 7...
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NationalAccount - 1 GSBA 526 Global Economics National...

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