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141_Chapter_6_Lecture - 6[19 Measuring National Output and...

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6 [19] National Output and National Income Measuring OUTLINE OF TEXT MATERIAL I. Introduction A. Macroeconomics relies on data. 1. Much of this data is collected by the government and/or central bank. 2. Before we can understand how the economy works we must know what it looks like. Data collected on GDP, national income, consumption expenditure, prices, interest rates and a host of other variables give us a picture of the economy. B. National Income and Product Accounts 1. Most countries collect this information in the national income and product accounts (NIPA) . a. In the United States the NIPA are collected and summarized by the U.S. Department of Commerce’s Bureau of Economic Analysis (BEA). b. These accounts tell us how the economy is performing and give us a framework that we can use to help understand how the parts of the macroeconomic engine work together. They can be compared to blueprints of an engine. 2. The NIPA do not explain how the economy works, but they do show the key parts and how they are connected. II. Gross Domestic Product A. What Is GDP? 1. Gross Domestic Product (GDP) is the most basic measure of how an economy is performing. 2. Gross Domestic Product is the total market value of a country’s output. It is the market value of all final goods and services produced in a country during a calendar year by factors of production located within that country. 50
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51 Principles of Macroeconomics B. Final Goods and Services mean those that are not produced for either resale or for use in the production of other goods. 1. Intermediate goods are produced by one firm for use by another firm to produce a final good (or another intermediate good). a. For example, a dairy farmer’s cows produce milk. However, that is not the final good because the raw milk will be sold to a dairy. The dairy will pasteurize it, package it, and sell the milk to a grocery store. Only when the grocery sells it to the consumer will the good be added into GDP becauseonly then is it a final good. b. Intermediate goods are not added separately in order to avoid double counting. Double counting can also be avoided by adding up national income using the value added approach. 2. Value added is the difference between a firm’s total revenue and what it pays other firms for intermediate goods. Value added includes wages and salaries, rent, interest, and profits. (Ignore taxes for the moment, as they only confuse things.) C. Exclusion of Used Goods and Paper Transactions: NIPA exclude purchases and sales of previously owned goods and paper asset transactions because GDP includes only newly produced goods and services. 1. Previously owned goods were counted when they were first produced. 2. Asset transactions are not counted because they are not new goods or services.
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