02 The Measurement and Structure of the National Economy-1

02 The Measurement and Structure of the National Economy-1...

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Unformatted text preview: 1 2-1 The Measurement and Structure of the National Economy 2-2 Agenda National Income Accounting Gross Domestic Product Saving and Wealth Real GDP, Price Indexes, and Inflation Interest Rates 2-3 National Income Accounting The national income and product accounts are an accounting framework used to measure current economic activity. 2-4 National Income Accounting 3 different approaches give identical results: Product approach : the dollar amount of output produced. Income approach : the dollar incomes generated by production. Expenditure approach : the dollar amount spent by purchasers. 2 2-5 National Income Accounting Why the three approaches are equivalent: Any output produced (product approach) is purchased by someone (expenditure approach) and results in income to someone (income approach). 2-6 National Income Accounting Therefore, the fundamental identity of national income accounting is: Total Production = Total Income = Total Expenditure 2-7 Gross Domestic Product The Product Approach to measuring GDP: GDP (gross domestic product ) is: 1. the market value 2. of final goods and services 3. newly produced 4. within a nation 5. during a fixed period of time . 2-8 Gross Domestic Product Market value : allows adding together unlike items by valuing them at their market prices. 3 2-9 Gross Domestic Product Newly produced : counts only things produced in the given period; excludes things produced during an earlier time period. 2-10 Gross Domestic Product Final goods and services: those goods and services that are not used up in the production process, i.e., are not intermediate goods. Intermediate goods and services are those used up in the production of other goods and services in the same period that they themselves were produced. Adding up value added works because it automatically excludes intermediate goods. 2-11 Gross Domestic Product Final goods and services: Two caveats Capital goods are used to produce other goods but are final goods because they are not completely used up in the same period that they are produced. Inventory investmentthe amount that inventories of unsold finished goods, goods in process, and raw materials have changed during the periodis also treated as a final good....
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02 The Measurement and Structure of the National Economy-1...

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