Econ 104 Chapter 5 - Chapter 5 National Income Accounting Econ 104 National Income Accounting The measurement of aggregate economic activity

Econ 104 Chapter 5 - Chapter 5 National Income Accounting...

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Chapter 5 National Income Accounting Econ 104 National Income Accounting - The measurement of aggregate economic activity , particularly national income and its components 1. Provides a useful perspective on the way the economy works 2. Shows how factor markets relate to product markets 3. How output relates to income 4. How consumer spending and business investment relate to production 5. Shows how the flow of taxes and government spending affects economic outcome Measures of Output - Gross Domestic Product (GDP) Gross Domestic Product (GDP) - The total market value of all final goods and services produced within a nation’s borders in a given time period 1. Need some mechanism for organizing annual output data into a more manageable summary- price 2. Each good and service produced and brought to market has a price 3. That price serves as a measure of value for calculating total output 4. GDP is simply the sum of all final goods and services produced for the market in a given time period, with each good or service valued at its market price The Measurement of Output 1. It’s impossible to add up all output in physical terms 2. Total output is measured in monetary terms , with each good or service valued at its market price
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3. GDP refers to the total market value of all goods and services produced in a given time period 4. The total value of the oranges, bicycles, and rock concerts produced a. $1.2 billion “last” year (last year’s GDP was $1,200 million) b. $1.4 billion “this” year (this year’s GDP was $1,400 million) 5. The use of prices to value market output allows us to summarize output activity and to compare the output of one with another GDP vs. GNP 1. GDP is of relatively recent use in U.S. national income accounts 2. Gross national product (GNP) refers to the output produced by American- owned factors of production regardless of where they’re located Ex: GNP would include some output from an Apple computer factory in Singapore but exclude some of the output produced by a Honda factory in Ohio 3. Gross domestic product (GDP) refers to output produced within America’s borders 4. GDP is geographically focused , including all output produced within a nation’s borders regardless of whose factors of production are used to produce it Ex: Apple’s output in Singapore ends up in Singapore’s GDP ; the cars produced at Honda’s Ohio plant are counted in America’s GDP International Comparisons 1. The geographic focus of GDP facilitates international comparisons of economic activity GDP per Capita - Total GDP divided by total population ; average GDP 1. International comparisons of total output are even more vivid in per capita terms 2. GDP per capita relates the total value of annual output to the number of people who share that output- the average GDP per person 3. Disparities in per capita GDP mean that people in low-income countries have little access to telephones, televisions, paved roads, or schools- also die a lot younger than do people in rich countries
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