National Income Accounting

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National Income Accounting
Chapter 6 Spring, 2008
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I. Importance of macroeconomic measurement

• A. Measures level of economic production at some
  point in time and explains immediate causes of
  that level of performance
• B. Compares economic conditions over time
• C. Provides a basis for formulation and
  application of appropriate public policies to
  improve economic performance

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II. Gross Domestic Product

• A. GDP defined as the total market value of all
  final goods and services produced within a
  nations borders in one year
• B. GDP exclusions
• C. Nominal vs. Real GDP
• D. Expenditures approach to calculating GDP
• Website www.bea.gov
• E. Summary CIGXn GDP
• F. Income approach to GDP How spending was
  allocated as income
• G. The underground economy

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II. Gross Domestic Product (cont.)

• Avoid Multiple Counting
• Intermediate Goods
• Final Goods
• Value Added
• Exclude Nonproduction Transactions
• Financial Transactions Excluded
• Second Hand Sales

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Two Approaches to GDP
Expenditure Approach
Income Approach
Consumption by Households
Wages


Rents
Investment by Businesses

G D P



Interest

Government Purchases

Profits

Expenditures By Foreigners
Statistical Adjustments
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Gross Domestic Product Measures Total Production

• An Equation for GDP and Some Actual Values

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III. Other Measures of Output

• A. Net domestic product (NDP) GDP -
  depreciation allowance
• B. National income (NI) NDP - indirect business
  taxes
• C. Personal income (PI) is income received by
  households. To calculate Take NI minus payroll
  taxes (social security contributions) minus
  corporate taxes minus undistributed corporate
  profits (retained earnings) and add transfer
  payments
• D. Disposable income (DI) personal income -
  personal income taxes
• E. Personal Saving Disp. Income - personal
  consumption expenditures