Chapter 2 Part 1

Chapter 2 Part 1 - Chapter 2 The Measurement and Structure...

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Chapter 2 The Measurement and Structure of the National Economy
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2 National Income Accounting National income accounts : an accounting framework used in measuring current economic activity. These accounts are set up in a way that mirrors the structure of the economy, so they help us understand how the economy works.
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3 National Income Accounting In the United States, the national income accounts are constructed quarterly by government economists and statisticians in the Bureau of Economic Analysis (BEA), a part of the Department of Commerce. BEA Website: http://www.bea.gov/
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4 How to measure economic activity ? Producers Consumers $ Output Produced Incomes received Expenditures
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5 How to measure economic activity ? Product Approach : measure the market value of output produced , excluding output used up in intermediate stages of production. Income Approach : measure the incomes received by the producers of output. Expenditure Approach : measure the amount spent by all end users of output.
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6 How to measure economic activity ? In principle, the 3 approaches should yield the same measurement of current economic activity. In practice, there might be some discrepancies due to incomplete or misreported data.
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7 Example OrangeInc JuiceInc Consumers $ orange orange $ juice $
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8 Example OrangeInc Transactions Expenses: Wage bill $15,000 Tax payment $ 5,000 Revenue: Orange sold to public $10,000 Orange sold to JuiceInc $ 25,000 Total $ 35,000 JuiceInc Transactions Expenses: Wage bill $ 10,000 Tax payment $ 2,000 Oranges purchased from OrangeInc $ 25,000 Revenue: $ 40,000
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9 Example : Income Approach The income approach measures economic activity by adding all the incomes generated by production, including wages received by workers (before-tax) profits received by owners of firms
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10 Example: Income Approach OrangeInc Transactions Wage bill $15,000 Tax payment $ 5,000 Revenue Orange sold to public $10,000 Orange sold to JuiceInc $ 25,000 Total $ 35,000 Profits = Revenue - wage
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Chapter 2 Part 1 - Chapter 2 The Measurement and Structure...

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