Chapter 27 _ Measuring Domestic Output and National Income _ Econ 2020.pdf - \u201cThis chapter will help you interpret such headlines and understand the

Chapter 27 _ Measuring Domestic Output and National Income _ Econ 2020.pdf

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“This chapter will help you interpret such headlines and understand the stories reported under them. Specifically, it will help you become familiar with the vocabulary and methods of national income accounting. Such accounting enables economists to measure the long-run rate of economic growth and identify the recessions and expansions associated with the economic ups and downs known as the business cycle. In addition, the terms and ideas that you encounter in this chapter will provide a needed foundation for the macroeconomic models found in subsequent chapters.” 27.1 [Assessing the Economy’s Performance]: Explain how gross domestic product (GDP) is defined and measured. National income accounting measures the economy’s overall performance. It does for the economy as a whole what private accounting does for the individual firm or for the individual household. A business firm measures its flow of income and expenditures regularly, with that information in hand, the firm can gauge its economic health. If things are going well and profits are good, the accounting data can be used to explain that success. Were costs down? Was output up? Have market prices risen? If things are going badly and profits are poor, the firm may be able to identify the reason by studying the record over several accounting periods. All this information helps the firm’s managers plot their future strategy. National income accounting operates in much the same way for the economy as a whole. The Bureau of Economic Analysis (BEA), an agency of the Commerce Department, compiles the National Income and Product Accounts (NIPA) for the U.S. economy. This accounting enables economists and policymakers to: Assess the health of the economy by comparing levels of production at regular intervals. Track the long-run course of the economy to see whether it has grown, been constant, or declined. Formulate policies that will safeguard and improve the economy’s health. The primary measure of the economy’s performance is its annual total output of goods and services or, as it is called, its aggregate output . There are several ways to measure aggregate output depending upon how one wishes to define “an economy.” For instance, should the value of the cars produced at a Toyota plant in Ohio count as part of the output of the U.S. economy because they are made within the United States or as part of the Japanese economy because Toyota is a Japanese company? As mentioned in Chapter 26, gross domestic product (GDP) defines aggregate output as the dollar value of all final goods and services produced within the borders of a country during a specific period of time, typically a year. Under this definition, the value of the cars produced at the Toyota factory in Ohio clearly count as part of U.S. aggregate output rather than Japanese aggregate output because the cars are made within the borders of the United States.
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  • Spring '10
  • RUDIGERVONARNIM
  • Macroeconomics, gross domestic product

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