The National Income Accounts and the Government BudgetNational Income and Product AccountingSpending=Purchases of buying groups: households, business, government, foreignIncome = Earnings of all types: wages, rent, interest, dividends, retained earnings, depreciation allowancesIncome = Earnings of all types: wages, rent, interest, dividends, retained earnings, depreciation allowancesThe Relationships among the Basic Spending and Income CategoriesThe Relationships among the Basic Spending and Income CategoriesThe Relationships among the Basic Spending and Income CategoriesThe Federal BudgetState & Local BudgetsBRINNER16.pptThe National Income Accounts and the Government BudgetLecture 6BRINNER26.pptNational Income and Product Accounting Income and Spending on Domestic Goods Should Add to Same Total, which is also Domestic Output All Measure the Value-Added Purchased and Provided Spending=Purchases of buying groups: households, business, government, foreign buyers Income=Earnings of all types: wages, rent, interest, dividends, retained earnings, depreciation allowancesBRINNER36.pptSpending=Purchases of buying groups: households, business, government, foreign Don’t Double Count -- Only Final Purchases by Final User Are Added Up Deduct Purchases from Foreign Suppliers and Add Purchases by Foreign Buyers GNP/GDP = All Final Purchases by Domestic Buyers -Imports + Exports GNP=Output Produced by Factors Owned by US GDP=Output Produced in Our BordersBRINNER46.pptIncome = Earnings of all types: wages, rent, interest, dividends, retained earnings, depreciation allowances Gross Product vs. Net Product/ Income:– the difference is just depreciation, the using up of output (capital) created in earlier periods– a.k.a. “capital consumption allowance” NNP vs National Income– the difference is a set of sales-like (“excise”) taxes collected before any private sector unit calculates its incomeBRINNER56.pptIncome = Earnings of all types: wages, rent, interest, dividends, retained earnings, depreciation allowances National Income: the economic pie sliced up among the private sector participants Households earn wages, benefits, interest, rent, and “entrepreneurial income” (laymen call them profits, but these are not earned by a formal corporation) Corporations earn the residual: “profits”, and then pay part out as dividends to households Both pay some taxes, get some transfers (negative taxes)BRINNER66.pptThe Relationships among the Basic Spending and Income CategoriesCCAC INDIRECT TAXHOUSEHOLD HOUSEHOLD WAGES WAGES GROSS DISPOSABLE(PRE-TAX) (PRE-TAX) PRIVATE- INCOMEGNP NNP RENT RENT SOURCENATIONAL ENT. INC. ENT. INC. INCOMEINCOME INTEREST INTEREST PERSONAL I POST-TAX DIVIDENDS DIVIDENDS & PAYROLLPROFITS RET. EARN. TRANSFERS HH TAXESG PROFIT TAX PROFIT TAXXMGROSS ... DISPOSABLEGNP DOMESTIC IMPORTS INCOME PVT. SLICES PROFITS HOUSEHOLD PLUS GOVT. HOUSEHOLDPURCHASES INCOME TRANSFERS INCOMESPENDING INCOMESBRINNER76.pptThe Relationships among the Basic Spending and Income Categories1950 SHARES OF A $300BILLION "PIE"WAGES64%PROFITS18%NET INTEREST1%OTHER17%1999 SHARES OF A $7500 BILLION PIEWAGES72%PROFITS11%NET INTEREST6%OTHER11%BRINNER86.pptThe Profit Share of GDP cycles around 6%, rising when the economy strengthens(as indicated by a falling unemployment rate)0%1%2%3%4%5%6%7%8%1960:11963:11966:11969:11972:11975:11978:11981:11984:11987:11990:11993:11996:11999:1024681012Unemployment Rate(Inverted scale)Profits as % of GDPProfit Share of GDPUnemployment RateNote: “Profit Margin” defined as Profits/GDP; Falling unemployment rate is viewed as a strengthening economyBRINNER96.pptThe Relationships among the Basic Spending and Income CategoriesSHARES OF US NATIONAL INCOME0.0%2.5%5.0%7.5%10.0%12.5%15.0%17.5%20.0%22.5%25.0%195019521954195619581960196219641966196819701972197419761978198019821984198619881990199219941996199850.0%52.5%55.0%57.5%60.0%62.5%65.0%67.5%70.0%72.5%75.0%PROFITSNET INTERESTOTHERWAGES (Right Scale)BRINNER106.pptThe Federal Budget1995 US FEDERAL GOVERNMENT (Approximate)$BILLION RECEIPTS SPENDING $BILLION94 INDIRECT TAXES TRANSFERS 632579 PAYROLL177 CORP. PROFIT GRANTS-IN-AID 184579 PERSONAL PURCHASES 524OF GOOD & SERVICESMilitary-Pay $135Military-Goods $161Other-Pay $71 Other-Goods $73NET SUBSIDIES 32DEFICIT NET INTEREST 262=$205 BILLION PAID 1429 TOTAL TOTAL 1634BRINNER116.pptState & Local Budgets1995 STATE & LOCAL GOVERNMENTS$BILLION RECEIPTS SPENDING $BILLION71 PAYROLL TRANSFERS 273463 INDIRECT TAXESPURCHASES 738OF GOOD & SERVICESConstruction $104Pay $50635 CORP. PROFITOther $128 177 PERSONAL198 FEDERAL GRANTSNET INTEREST 66receivedNET SUBSIDIES 32SURPLUS=$26 BILLION943 TOTAL TOTAL
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