GDP - Notes on Principles of Macroeconomics Vijaya Raj...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Notes on Principles of Macroeconomics Vijaya Raj Sharma, Ph.D. NATIONAL INCOME ACCOUNTS NATIONAL INCOME ACCOUNTS National income accounts of a country compile the data on aggregate economic activity in the country, like total value of output, national income, domestic investment, business inventory, etc. Almost every country in the world maintains and publishes national income account figures, the most important and the most reported of all is the gross domestic product, which we explain below. GROSS DOMESTIC PRODUCT Gross Domestic Product (GDP) is a measure of income or output produced in an economy in a specified period of time. It is defined as the market value of all final goods, services, and structures produced domestically during a specific period of time. Note that only final goods are accounted in GDP. Goods may be classified as either final goods or intermediate and primary goods, depending upon their usage. When goods are meant to be used by the final users, they are called final goods. Examples are cars, groceries, houses, dresses, etc. that households buy, or plant, machines, equipment, etc. that businesses buy. Similarly, government and foreigners could also be the end users of goods produced in our economy. In contrast to final goods, goods that are produced to be assembled into a final good (like tires in a car) or meant to be an input to production of a final good (like wheat flour in the production of bread) are called intermediate and primary goods. Only final goods are accounted in GDP, not intermediate and primary goods to avoid double counting, because the values of intermediate and primary goods are included in the value of final goods. The market value of bread includes the value of wheat flour that has gone into making bread. The value of tires that are assembled into a new car is included in the market value of car. However, keep in mind that businesses also produce tires to meet household demand for replacing worn-out old tires in pre- owned cars; such tires are final goods, and their market values are accounted in GDP. Only domestically produced goods, i.e., goods that are produced by labor and property located in the United States are accounted in US GDP. It is irrelevant who are those labor resources engaged in production – U.S. nationals or foreigners, and it is also irrelevant who owns the physical resources that are used in production, whether U.S. nationals or foreigners. The only requirement is that the good be produced within the territory of the United States. Thus, umbrellas produced by a Korean national in New York are part of U.S. GDP (not a part of Korean GDP, because production activity is not located in Korea). For the same reason, services of an American petroleum engineer provided to an oil refinery in Venezuela are not included in U.S. GDP (but included in Venezuelan GDP).
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Only goods produced in a specific period of time are included. For example, GDP of 1998 would not include goods produced in 1997, even if the good may have been sold in 1998. What matters is the year when a good is produced, not when it is sold. Whether a
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/07/2011 for the course ECON 3461 taught by Professor Spencer during the Spring '10 term at Golden West College.

Page1 / 13

GDP - Notes on Principles of Macroeconomics Vijaya Raj...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online