National income and product accounts Data collected and published by the government describing the various components of the national income and output in the economy Gross Domestic Product GDP total market value of all nal goods and services produced within a given period by factors of production located within a country Final Goods and Services Goods and services produced for nal use Intermediate goods goods produced by one rm for use in processing by another rm Value added difference between value of goods as they leave a stage of production and the cost of the goods as they entered that stage In calculating GDP we can sum up the value added at each stage of production or we can take the value of nal sales we do not use value of total sales in an economy to measure how much output has been produced Tires sold to automobile manufacturers Not counted in GDP Used to avoid double counting Exclusion of Used Goods and Paper Transactions GDP does not count transactions in which money or goods change hands but in which no new goods or services are produced House is counted in GDP only at time it is built not when it is resold Buying a used car is not counting in GDP Sales of stocks and bonds are not included they are transfers of ownership of assets and do not correspond to current production However if you pay a fee to a broker for selling a stock of yours to someone else it is counted in GDP because the broker is performing a service for you Exclusion of Output Produced Abroad by Domestically Owned Factors of Production GDP is the value of output produced by factors of production located within a country Pro ts earned in u s by foreign owned companies are counted in u s GDP GNP gross national product total market value of all nal goods and services produced within given period by factors of production owned by a country s citizens regardless of where output is produced Calculating GDP Expenditure approach measures total amount spent on all nal goods and services during a given period Income approach measures the income wages rents interest and pro ts received by all factors of production in producing nal goods and services Every payment expenditure by a buyer is at the same time a receipt income for the seller we can measure either income received or expenditures made and will end up with same total output Expenditure Approach Personal consumption C household spending on consumer goods Gross private domestic investment I spending by rms and households on new capital that is plant equip ent inventory and new residential structures Government consumption and gross investment G Net exports EX IM net spending by the rest of the world or exports EX minus imports IM GDP C I G EX IM Personal Consumption Expenditures C Largest part of GP Durable goods goods that last relatively long time such as cars and household appliances Nondurable goods goods that are used up fairly quickly such as food and clothing Services things we buy that do not involve production of physical things such as legal and medical services and education Gross Pricate Domestic Investment I Total investment in capital purchase of new housing plants equipment and inventory by private sector Nonresidental investment expenditures by rms for machines tools plants etc Residential investment expenditures by households and rms on new housings and apartment buildings Change in business inventories amount by which rms inventories change during a period Inventories are the goods that rms produce now but intend to sell later produce value in future GDP nal sales change in business inventories Gross investment vs net investment Capital assets decline in value over time Depreciation amount by which an asset s value falls in a given period Gross investment total value of all newly produced capital goods plant equipment housing and inventory produced in given period Net investment gross investment depreciation Government Consumption and Gross Investment G Expenditures by federal state and local governments for nal goods and services Government transfer payments and interest payments on government debt are not included Net Exports EX IM The Income Approach Difference between exports and imports can be or Looks at GDP in terms of who receives it rather than as who purchases it National income total income earned by factors of production owned by a country s citizens sum of 8 incomes Compensation of employees wages salaries and various supplements employer contributions to social insurance and pension funds for example paid to households by rms and by government Proprietors s income income of unincorporated businesses Rental income income received by property owners in form of rent Corporate pro ts income of corporations Net interest interest paid by business Indirect taxes minus subsidies taxes such as sales taxes custom duties and license fees less subsidies that the government pays for which it receives no goods or services in return Net business transfer payments net transfer payments by businesses to others Surplus of government enterprises income of government enterprises National income is income of country s citizens not income of residents of a country Net national product NNP gross national product minus depreciation a nation s total product minus what is required to maintain the value of its capital stock Statistical discrepancy data measurement error GDP receipts of factor income from rest of world payments of factor income to the rest of the world GDP depreciation NNP statistical discrepancy national income Useful way to think about national income is to consider how much goes into households total income of households is personal income and almost all of national income is personal income Personal income income received by households before they pay personal income taxes Disposable personal income or after tax income personal income minus personal income taxes the amt that households have to spend or save Personal saving amount of disposable income that is left after total personal spending in given period Personal saving rate percentage of disposable personal income that is saved if personal savings rates are low households are spending a large amount relative to their incomes if it is high households are spending cautiously Nominal versus Real GDP Not good measurement of aggregate output over time Current dollars current prices we pay for goods and services Nominal GDP GDP measured in current dollars good a PxQ goodb PxQ
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