Lecture 2.pptx - Lecture 2 Chapter 7 Measuring Domestic Output and National Income Assessing the Economys Performance National income accounting

Lecture 2.pptx - Lecture 2 Chapter 7 Measuring Domestic...

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Lecture 2 Chapter 7 Measuring Domestic Output and National Income
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Assessing the Economy’s Performance National income accounting measures economy’s overall performance Bureau of Economic Analysis compiles National Income and Product Accounts Assess health of economy Track long-run course Formulate policy
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Gross Domestic Product(GDP) GDP is the dollar value of all final goods and services produced within the borders of a country during a specific period of time. Measure of aggregate output Monetary measure Avoid multiple counting One way to avoid multiple counting is to include market value of final goods and ignore intermediate goods Another approach is to count value added
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Monetary Measure LO1
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Gross Domestic Product Continued (1) Stage of Production (2) Sales Value of Materials or Product $ 0 Firm A, sheep ranch 120 Firm B, wool processor 180 Firm C, coat manufacturer 220 Firm D, clothing wholesaler 270 Firm E, retail clothier 350 Total Sales Value $1140 Value Added (total income) (3) Value Added ]--------$120 (= $120 - $ 0) ]-------- 60 (= 180 - 120) ]-------- 40 (= 220 - 180) ]-------- 50 (= 270 - 220) ]-------- 80 (= 350 - 270) $350 LO1
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Gross Domestic Product Concluded Exclude financial transactions Public transfer payments e.g social security payments, welfare payments etc Private transfer payments e.g money that parents give to children Stock market transactions Exclude second hand sales Sell used car to a friend LO1
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Two Approaches to GDP Income approach Count income derived from production Wages, rental income, interest income, profit Expenditure approach Count sum of money spent buying the final goods Who buys the goods?
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