Exploration 11

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Exploration 11

• Gross Domestic Product
• National Income Accounting

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Thread

• This is the final economic measurement of the
  state of the economy.
• Dont forget that, besides these three,
  measurements of inequality are also important.

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You should be able to

• Define GDP and explain its limits
• List and explain the four components of GDP
• Explain why GDP expenditures output income

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Verbal questions final good?

• Mayonnaise
• Purchased by me
• Purchased by State Line diner
• Computer System
• Purchased by me
• Purchased by Verizon

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Categories of Final Goods Expenditures Approach

• GDP
• Consumption C
• Investment I
• Government purchases G
• Net exports X M
• GDP C I G X M
• What is GDP today?
• Bureau of Economic Analysis

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Team exercise Try your skill at counting GDP
EL p70/71

• Clickers
• A government
• B business investment
• C consumer spending
• D net exports
• E excluded

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Equality of output, income and expenditure

• Weve discussed expenditures
• But how much income will there be in an economy?
• The Pie Principle
• The size of the pie we eat is equal to the size
  of the pie we bake
• 10B in production (output) 10B goods and
  services to use
• Income is just a name for the right to use goods
  and services

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Equality of Income and Expenditure

• Circular flow, Fig 7-1, p 167
• HH selling labor services/buying goods
• BF buying labor services/selling goods
• GDP Expenditures Output National Income
• Key idea whatever is produced is paid for
• Wages rents interest profits
• Add depreciation, indirect business taxes and
  net foreign factor income. Fig 7-2, p 171

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The Circular Flow
back
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Whats are some limits to GDP?
Link

• Treats goods and bads the same
• Treats crime, divorce and natural disasters as
  economic gain.
• Environmental spills and cleanups count
• Ignores non-market activity
• Depletion of natural capital as income
• Takes no account of income distribution

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Ed Diener, Martin E. P. Seligman, Beyond Money
Towards an Economy of Well-Being
http//www.brookings.edu/dybdocroot/comm/events/20
040603b.pdf
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Counting Expenditures Income The Pie Principle

• Team Exercises EL p72

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Next time

• What is most popular movie of the week?
• What is the most popular movie of all time?
• As measured by box-office receipts.

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Wrap up What did you learn?

• What is GDP? What are intermediate goods?
• What are the components of GDP
• Expenditures approach?
• Income approach?