National income accounting

1
National income accounting

• Gross domestic product, GDP

2
Approaches to GDP
Expenditure approach
Income approach
3
Gross Domestic Product

• Expenditure approach
• Market value of all final goods and services
  produced in an economy in a particular period of
  time
• Income approach
• Payments to owners of resources used to produce
  aggregate output

4
Expenditure approach to GDP GDP C I G
(X-M)

• GDP is divided into four aggregates
• Personal consumption, C
• Investment, I
• Government purchases, G
• Net exports, X - M

• GDP2007 13,843 billion
• C 9,224
• I 2,132
• G 2,691
• X-M -712

5
Investment, gross and net

• Gross private domestic investment 2,132
• Fixed investment 2,124
• Change in business inventories 8
• Net private domestic investment gross private
  domestic investment deprecation of fixed
  capital
• For 2007
• Depreciation 1,686 billion
• Net investment 2,132 1,686 446 billion

6
NDP and Green GDP
Net Domestic Product, NDP GDP depreciation of
fixed capital For 2007 GDP 13,843
billion Depreciation 1,686 billion NDP
12,157 billion

• Green GDP GDP depreciation of fixed capital
  depletion of natural and environmental resources
• Accounts for depletion of natural and
  environmental resources, in addition to
  depreciation of capital

7
Disposable income

• Disposable income, DI is income available to
  households after paying taxes and receiving
  transfer payments
• GDP (taxes transfers)
• GDP NT
• Where Net taxes, NT taxes - transfers

8
Nominal versus Real GDP

• Changes in prices affect GDP overtime
• As prices increase, nominal GDP will increase
  even if aggregate output has not
• Gives appearance of economic growth when there is
  none

9
Nominal v. real GDP
YEAR Nominal GDP change nominal GDP Real GDP change real GDP
2006 13,194 11,319
2007 13,846 4.9 11,567 2.2
10
Nominal versus Real GDP

• Using the price index to deflate nominal GDP
  values
• Real GDP Nominal GDP/(price index/100)
• For 2007
• Price index 120
• 11,567 13,843 /(120/100)

11
Real GDP per capita adjusting for differing
populations

• Why?
• Population within an economy grows over time
• Economies with larger populations naturally tend
  to have higher GDPs, e.g. China, India, Brazil
• Real GDP per capita Real GDP/population
• For US 2007 11,567 billion/300 million 38,566

12
Summary

• Nominal GDP C I G (X-M)
• NDP GDP depreciation
• Green GDP GDP depreciation of fixed capital
  depletion of natural and environmental resources
• Net taxes taxes transfers
• DI GDP Net taxes
• Real GDP Nominal GDP/(GDP deflator/100)
• Real GDP per capita real GDP/population