National Income Accounting

1
CHAPTER 6

• National Income Accounting

2
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

3
II. Gross Domestic Product

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

4
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 profits taxes minus undistributed
  corporate profits and add transfer payments
• D. Disposable income (DI) personal income -
  personal incometaxes
• E. Personal Saving Disp. Income -
  personal consumption expenditures

5
IV. Nominal and Real GDP

• A. Dilemma how to tell whether a change in
  output value is real or simply the result of
  price changes
• B. Solution deflate nominal GDP to correct for
  rising prices, inflate nominal GDP in periods
  when prices fall
• C. GDP price index is used to complete this
  correction In equation form Nominal GDP/GDP
  Price index (in decimal form) Real GDP