FSU ECO 2013 - Taking the Nation's Economic Pulse

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Taking the Nation s Economic Pulse Monday May 18 2015 1 11 PM I GDP a GROSS DOMESTIC PRODUCT the market value of final goods and services produced within a country during a specific time period b i ii Performance measure Announced quarterly at annual rate DO INCLUDE FINAL GOODS AND SERVICES i Don t include intermediate goods 1 INTERMEDIATE GOODS goods purchased for resale or for use in producing another good or service FINAL GOODS AND SERVICES items purchased by their ultimate end user 2 a b Buying a bag of flour from Publix is a FINAL GOOD INCLUDED IN GDP Dunkin buying flour is NOT included in GDP INTERMEDIATE GOOD Dunkin will then make bagels with the flour i i ii iii c DO INCLUDE SERVICES RENDERED AND SALES COMMISIONS Don t include income transfers financial transactions welfare social security 1 Relative passed away and left a will is NOTincluded in GDP Cutting a lawn is NOT GDP A business cutting a lawn as a service will be included in GDP 2 d DO INCLUDE PRODUCTION BY INDIVIDUALS OF ANY CITIZENSHIP WITHIN THE U S Concert in the US is included in GDP Concert in Canada is NOT included in GDP Don t include count production by U S citizens working outside the US 1 2 Citizenship doesn t matter Location does 1 Item produced in another country will count ONLY to that countries GDP e DO INCLUDE VALE OF SERVICES PROVIDED BY REALTOR CAR DEALER CLOTHING RESELLER ETC i Don t include value of the used goods 1 Tom Brady Jersey sold for 46 000 is NOT part of GDP iii Location does 1 Item produced in another country will count ONLY to that countries GDP e DO INCLUDE VALE OF SERVICES PROVIDED BY REALTOR CAR DEALER CLOTHING RESELLER ETC i Don t include value of the used goods 1 2 Tom Brady Jersey sold for 46 000 is NOT part of GDP Buying a home is NOT included in GDP a b Only a brand new constructed home is included in GDP RENT IS INCLUDED IN GDP i If the item is illegal the item is NOTincluded in GDP One Two Weed in Colorado is included in GDP prostitution in Las Vegas Nevada is included in GDP f Examples i ii iii iv v vi vii viii No No YES YES Dr visit for 300 1 Sell old text book for 30 1 Sell old home built in 1994 for 75k 1 Real estate agent makes 2k commission 1 Subway buys 500 worth of Mayonnaise 1 200 on tires 1 Cucumbers in your garden 1 Buy cucumbers at Publix 1 No intermediate good YES YES No II Dollars are the Common Denominator for GDP a Each good service counted increases GDP by it s market price i ii 22 oz of Bud light at pro baseball game 7 22 oz of Bud light from gas station 2 III GDP Measures Output and Income a b c d ADD up all expenditures on goods and services produced during the year OR Add up all the income payments to the resource suppliers of the things used to produce the goods and services Dollar flow of expenditures on final goods dollar flow of income and indirect cost from final goods i GDP 1 2 Final goods only not intermediate goods New goods only not used goods c d Add up all the income payments to the resource suppliers of the things used to produce the goods and services Dollar flow of expenditures on final goods dollar flow of income and indirect cost from final goods i GDP 1 2 3 Final goods only not intermediate goods New goods only not used goods Produced goods services not income transfers or financial transactions Two Ways of Measuring GDP Expenditure Approach a IV i ii iii iv Personal consumption expenditures ADD Gross private domestic investment ADD Government consumption and gross investment ADD Net exports of goods and services 1 EQUALS GDP b GDP C I G NX C consumption I investment G government spending NX net exports i ii iii iv Resource Cost Income Approach c Aggregate income 1 2 3 4 5 Employee compensation Income of self employed Rents Profits Interest a ADD Non income cost items 1 2 Indirect business taxes Depreciation a ADD 3 Net income of foreigners i ii i i V GDP Expenditure Approach PERSONAL CONSUMPTION EXPENDITURES Household spending on consumer goods and services PRIVATE INVESTMENT Production of capital goods that provide a flow of future services BUSINESS SPENDING a b c 71 OF GDP 14 OF GDP GOVERNMENT CONSUMPTIONS AND GROSS INVESTMENTS Expenditures on goods services consumed i ii Purchases of capital goods 20 of GDP b c PRIVATE INVESTMENT Production of capital goods that provide a flow of future services BUSINESS SPENDING i 14 OF GDP GOVERNMENT CONSUMPTIONS AND GROSS INVESTMENTS Expenditures on goods services consumed Purchases of capital goods 20 of GDP d NET EXPORTS exports imports EXPORTS goods and services produced domestically and sold to foreigners IMPORTS goods and services produced abroad but purchased by domestic consumers businesses and governments 4 of GDP VI GDP Resource Cost Income Approach a Indirect business taxes Taxes that increase a business firm s cost of production Examples sales excise property taxes b Depreciation Estimated based on expected life of the asset Capital consumption VII GNP a GROSS NATIONAL PRODUCT Total market value of all final goods and services produced by the citizens of a country Equal to GDP minus the net income of foreigners VIII Adjusting for Price Changes a Nominal GDP may rise because 1 More goods services 2 Higher prices i ii b Nominal values money values Expressed in current Now dollars Not adjusted for inflation Expressed in constant dollars base year Adjusted for inflation c Real values d EXAMPLES i ii i ii iii i ii i ii i ii i ii i ii i Imagine a country that only produces kibbles and Frisbees In 2013 1 2 10 bags of kibble 5 each 3 Frisbees 4 each Expressed in constant dollars base year Adjusted for inflation i ii i d EXAMPLES Imagine a country that only produces kibbles and Frisbees In 2013 1 2 3 4 10 bags of kibble 5 each 3 Frisbees 4 each Nominal GDP 62 Scenario 1 in 2014 a b c 10 bags of kibble cost 6 each 3 Frisbees 5 each Nominal GDP 75 Real GDP base year 2013 62 Year 2013 2014 Kibble Q Kibble P Frisbee Q Frisbee P Nominal GDP 10 bags 10 bags 62 75 5 6 4 5 3 3 a Real GDP 2013 base year for 2014 62 ii Imagine a country that only produces kibbles and Frisbees In 2013 1 2 3 4 10 bags of kibble 5 each 3 Frisbees 4 each Nominal GDP 62 Scenario 2 in 2014 a b c d 11 bags of kibble cost 6 each 5 Frisbees 5 each Nominal GDP 91 Real GDP base year 2013 75 Year 2013 2014 Kibble Q Kibble P Frisbee Q Frisbee P Nominal GDP 10 11 62 91 4 5 5 6 3 5 IX Real …


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FSU ECO 2013 - Taking the Nation's Economic Pulse

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