GDP

National income accounting: Economists collect statistics on production, income, investments, and savings

GDP is the total dollar value of all final goods and services produced within a countries boarder within a given year

GNP( gross national product) a measure of what its citizens produced and whether they produced these items within its boarders

2 ways to calculate GDP:

Included in GDP:

Consumption ( C ): takes up 60% of the economy. It includes final goods and services

Gross private domestic investment (IG): factor equipment maintenance, new factory equipment, construction of housing, unsold inventory of products built in a year

Government spending (G): on anything public related

Net exports (Xn) : Exports - imports

C+IG+G+Xn= GDP

What’s not included:

Used/ second hand goods: already counted

Intermediate goods: goods and services purchased for resale or for further processing and manufacturing

Non market activities: ex. Volunteering, drug sales, underground activities

Financial transactions: stocks, bonds, real-estate

Gifts or transfer payments: 2 types

-private: produces no output, simply transferring funds from one person to another ex. Christmas gift, scholarship

- Public: where recipients contribute nothing to the current production ex. Social security, welfare payments

Expenditures approach: adding up the market value of all domestic expenditures made on all final goods/ services in a single year

C+IG+G+Xn= GDP

Income approach: adding up all the income earned by households and firms in a single year

GDP: W+R+I+P+ Statistical adjustments

-          Wages: compensation of employees/ salary

-          Rents: from tenets to landlords, from lease payments that corporations pay for the use of space

-          Interest: money paid by private businesses to the suppliers of loans used to purchase capital

-          Profit: corporate income taxes, dividends, undistributed corporate profits

-          (proprietor’s income)

Budget formula: (gov purchases of goods/services) + (gov transfer payments) – (gov tax and fee collections)

-          If the number is positive you have a budget deficit

-          If the number is negative you have a budget surplus.

Trade= exports – imports

GNP= GDP + net foreign factor income

Net national product (NNP) = GNP – depreciation

Net --- product (NDP) =GDP- Depreciation

National income= GDP- indirect bus. Taxes- depreciation – net foreign factor payment

National income= compensation of employees+ rental income+ interest income+ proprietors income+ corporate profits

Disposable personal income: national income- personal household taxes + gov transfer payments

Nominal vs. real GDP

Nominal GDP: The value of output produced in current prices,

-          Can increase from year to year if either output or price increase

Real GDP : the value of output produced in base year or constant prices

-          Adjusted for inflation

-          Can increase from year to year only if output increase

-          Base year price times current quantity

Formula for both= Price x quantity

Price index and GDP deflator

Price index is a measure of inflation by tracking changes in the price of a market basket of goods compared with the base year

 (Price of market basket of goods in current year/ price of market basket of goods in Base year) x 100

GDP deflator:  a price index used to adjust from nominal GDP to real GDP

-In the base year GDP deflator is equal to 100

-For years after the base year GDP deflator is greater than 100

- For year before the base year GDP deflator is less than 100

(Nominal GDP / Real GDP) x100

Inflation= ((New GDP deflator- Old GDP deflator)/ Old GDP deflator) x100