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Chapter 20

# Chapter 20 - Chapter 20 measurement of national income...

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Chapter 20 – measurement of national income There are 3 different ways we can calculate national income The quality of life cannot be calculated through national income Production occurs in stages – most firms produce outputs that are other firms inputs – e.g. natural resources converted into intermediate goods which other firms produce. Intermediate products – usually not consumed, go into other firms that produce the goods and services which we as consumers get satisfaction from The final products we consume is important in determining the national income GDP is the value of final goods and services produced in the domestic economy – includes additions to inventory which are produced this year but not yet consumed. – e.g. fridges GDP also includes exports of final and intermediate goods – they are final sales for the domestic economy. – if we export intermediate goods, with respect to our country, to us it is final, and affects out GDP. GDP excludes imported final goods – as it is not used domestically. It can be hard to distinguish between final goods and intermediate goods – is milk final or intermediate? the problem of double counting is avoided by measuring total output as the sum of value added. Each firm’s contribution to total output is value added, it is revenues – cost of intermediate goods. (not the cost of the workers)

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If you add up all the value added from all firms, you will get the final GDP. The sum of the value added is equal to the value of the final good. o There 3 medthods for measuring national income: Total value added from domestic production Total expenditures on domestic output Total income generated by domestic production Due to curcular flow of income, these 3 measures yield the same total – GDP GDP from the Expenditure side o Condisder adding up the expenditures needed to purchase the final output produced
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Chapter 20 - Chapter 20 measurement of national income...

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