Lecture 3 handoutHandout National Income Accounting

Lecture 3 handoutHandout National Income Accounting - ECO...

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1/17 ECO 320L INTERMEDIATE MACROECONOMICS Handout: National Income Accounting 1/28/2009 Professor Beatrix Paal BRB 3.114 [email protected] (512) 475-8531 A SIMPLE EXAMPLE Basic example of national income accounting A simple economy – Lives only for one time period –C l o s e d – No government – Only one factor of production: labor Two firms – Gollum Enterprises catches rabbits –S am Co . makes rabbit stew Sam – Revenues: • $28: Sell stew to hobbits –C o s t s :
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ECO 320L, Professor Beatrix Paal National Income Accounting 2/17 The Product Approach Sum of value added – Market values of goods and services produced, excluding the value of goods and services used up in the process (intermediate goods). 1 $10 Wages $8 Cost of rabbits $14 Wages 1 1 $12 Revenue from consumers $28 Revenue from consumers $6 Corporate Profits $10 Corporate Profits $8 Revenue from Gollum Sam GDP = 20 + (28–8) = 40 Sum of income received by factors of production –W a g e s – Corporate profits The Income A pproach 2 $10 Wages $8 Cost of rabbits $14 Wages $12 Revenue from consumers 2 2 $28 Revenue from consumers $6 Corporate Profits $10 Corporate Profits $8 Revenue from
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ECO 320L, Professor Beatrix Paal National Income Accounting 3/17 The Expenditure Approach Sum of spending by ultimate users of output – Consumer spending on final goods (rabbits and stew) 3 $10 Wages $8 Cost of rabbits $14 Wages $12 Revenue from consumers 3 3 $28 Revenue from consumers $6 Corporate Profits $10 Corporate Profits $8 Revenue from Gollum Sam GDP = 12+28 = 40 The equivalence of the three approaches – What sellers receive (market value) (1) = What ultimate buyers spend (3) – What sellers receive (market value) (1) Income paid out by sellers to workers and owners (2) $10 Wages $8 Cost of rabbits $14 Wages 1 1 $12 Revenue from consumers 3 3 2 2 $28 Revenue from consumers $6 Corporate Profits $10 Corporate Profits $8 Revenue from Gollum Sam
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ECO 320L, Professor Beatrix Paal National Income Accounting 4/17 GDP CALCULATIONS IN MORE COMPLICATED EXAMPLES Inventory investment Accounting for inventory investment – Product approach: value of output includes value of inventory investment – Income approach: same as above also true when calculating profits – Expenditure approach: add value of inventory investment $10 Wages $8 Cost of rabbits $14 Wages 1 1 $12 Revenue from consumers 3 3 2 2 $24 Revenue from consumers $6 Corporate Profits $10 Corporate Profits $8 Revenue from Gollum
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This note was uploaded on 10/25/2010 for the course ECO 320L taught by Professor Kendrick during the Fall '10 term at University of Texas.

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Lecture 3 handoutHandout National Income Accounting - ECO...

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