eco 2601 终极版

Group 5

Members: Ginger, Leona, Maggie, Richard

What is GDP?

• GDP is the market value of final goods and services in a country during the given period.

1. Type of goods and services (no intermediate goods)

2. Location (within the country)

3. Time (in the current year)

• 7.1 Peter operates a garage which provides customers with car repairing services.

？Discuss how the 2008 GDP and its components were affected under the three different approaches of GDP accounting.

• In March 2008 he bought a 5-year old second hand car from his customer at a price of $60,000

• He paid his worker $5,000 to repair and clean up the engine (for improvements)

• then successfully sold the car to another customer for $68,000 in June 2008

Review of the three approaches

• Expenditure approach

Consumption + Investment + Government expenditure + Net export

• Income approach

Labor income + Capital income

• Outcome approach

Adding up the contribution to the final output by every firm in the economy

Expenditure Approach

Total car price $68,000

Second hand car $60,000

(previous years)

Service of improvement

$8,000

(Current year)

• Total output = $8,000 (C) + $0 (I) + $0 (G) + $0(NX)

Income Approach

• Labor income

Wage of workers $5,000 + Salary of Peter $ X

• Capital Income

Profit = Revenue $68,000 – Cost of second hand car $60,000 – Salary/Wage expenses $(5,000 + X)

Profit $(3,000 – X)

• Total output

$5,000 + $X + $(3,000 – X) = $8,000

Output ApproachStage of Production

Value of Output

Cost of intermediateinput

ValueAdded

$60,000 $0 $60,000

$68,000 $60,000 $8,000

$68,000

Output approach & Sum-up

• Total output = $8,000• The value of the second hand car should not by

calculated. Why?• It is the value added in previous years, not the

current year.

• The outputs obtained under the three approaches are the same.

• When calculating GDP, we should pay attention to the time and location of production.

7.2 a) A Chinese-owned ice-cream producer operating in the U.S.

• Total sales revenue

• Total costs include the following:

Wages paid to U.S. workers

Wages paid to Chinese workers

Interest paid to a U.S. bank

Rent paid to a U.S. landlord

• Total costs

$1,000

$500

$100

$40

$60

$700

Accounting Record

7.2 a) (i) What is the value of U.S. GDP contributed by this firm usingthe expenditure approach? Which component(s) of the expenditureapproach will be involved?

• Expenditure approach

• Total sales revenue

• Total costs include the following:

Wages paid to U.S. workers

Wages paid to Chinese workers

Interest paid to a U.S. bank

Rent paid to a U.S. landlord

• Total costs

$1,000

$500

$100

$40

$60

$700

Consumption Expenditure (C): $1000Contribution to U.S. GDP=$1000(C)+$0(I)+$0(G)+$0(NX) = $1000

Ice-cream: Final goodsMarket value: Sales revenue

Sold to household: consumption

7.2 a) (ii) What is the value of U.S. GDP contributed by this firmusing the income approach? Which component(s) of the incomeapproach will be involved?

• Income approach• Total sales revenue

• Total costs include the following:

Wages paid to U.S. workers

Wages paid to Chinese workers

Interest paid to a U.S. bank

Rent paid to a U.S. landlord

• Total costs

$1,000

$500

$100

$40

$60

$700

Labour

Labour income: $500+$100=$600

Capital income: ($1000-$700)+$40+$60=$400

Contribution to U.S. GDP: $600+$400=$1000

7.2 a) (iii) How much is this firm’s contribution to the Chinese GNP?

• Chinese GNP –the value of output produced by Chinese

• Total sales revenue

• Total costs include the following:

Wages paid to U.S. workers

Wages paid to Chinese workers

Interest paid to a U.S. bank

Rent paid to a U.S. landlord

• Total costs

$1,000

$500

$100

$40

$60

$700

Contribution to Chinese GNP:($1000-$700) + $100 = $400

7.2 b) If a Canadian tourist drinks German beer in arestaurant in the U.S., how will the U.S. GDP be affected?

• Assumption:Cost of German beer: $5Selling price of German beer: $8

• U.S. GDPConsumption Expenditure(C): $8

Imports(M): $5

GDP=C+I+G+X-M

U.S. GDP is affected by: + $8 - $5 = +$3

7.3 Country X produces only two products in 2005: canned salmon fish and truck.Stage ofproduction

Output produced Outputproduced by

Market value of output

Required intermediateinput

Market value of intermediate input

First Fresh salmon fish

Local fishermen

$ 3 million

None Zero

Final Canned salmon fish

Localfactory

$ 5 million

Freshsalmon fish

$ 3 million

Stage ofproduction

Output produced

Output produced by

Market value of output

Required intermediateinput

Marketvalue of intermediate input

First Engine Factory located in foreign country

$ 6 million

None Zero

Final Truck Local factory $ 9 million

Engine $ 6 million

7.3

Canned salmon fish 1/2 of the output 1/2 of the output

Purchased by Local households Foreigners

truck 1/3 of the output

1/3 of the output

1/3 of the output

Purchase/ unsold

Local firms government unsold

7.3 (a)

• how each of the four products (fresh salmon fish, canned salmon fish, engine and truck) contributes to county X’s GDP under the output approach;

what is the value of GDP under output approach

Output approach: add up the contribution to the final output of every firm in the

country

Value added = value of output – cost of intermediate input

7.3 (a)Output produced Output

produced by

Market value of output

Required intermediateinput

Market value of intermediate input

Fresh salmon fish

Local fishermen

$ 3 million

None Zero

Canned salmon fish

Localfactory

$ 5 million

Freshsalmon fish

$ 3 million

Output produced

Output produced by

Market value of output

Required intermediateinput

Marketvalue of intermediate input

Engine Factory located in foreign country

$ 6 million

None Zero

Truck Local factory $ 9 million

Engine $ 6 million

Valueadded

$ 3 million

$ 2 million

Value added

—

$ 3 million

$ 8 million

7.3 (b)

• How country X’s GDP in 2005 would be recorded using the expenditure approach.

• GDP= consumption expenditure

+ investment expenditure

+ government expenditure

+ net export

Final goods/ services

7.3 (b)

Stage ofproduction

Output produced Outputproduced by

Market value of output

Required intermediateinput

Market value of intermediate input

First Fresh salmon fish

Local fishermen

$ 3 million

None Zero

Final Canned salmon fish

Localfactory

$ 5 million

Freshsalmon fish

$ 3 million

Stage ofproduction

Output produced

Output produced by

Market value of output

Required intermediateinput

Marketvalue of intermediate input

First Engine Factory located in foreign country

$ 6 million

None Zero

Final Truck Local factory $ 9 million

Engine $ 6 million

7.3 (b)

Canned salmon fish $ 5 million

1/2 of the output 1/2 of the output

Purchased by Local households Foreigners

Truck$ 9 million

1/3 of the output

1/3 of the output

1/3 of the output

Purchase/ unsold

Local firms government unsold

C= 1/2 * 5 million = $ 2.5 million

7.3 (b)

Canned salmon fish $ 5 million

1/2 of the output 1/2 of the output

Purchased by Local households Foreigners

Truck$ 9 million

1/3 of the output

1/3 of the output

1/3 of the output

Purchase/ unsold

Local firms government unsold

I= (1/3+ 1/3) * 9 million = $ 6 million

7.3 (b)

Canned salmon fish $ 5 million

1/2 of the output 1/2 of the output

Purchased by Local households Foreigners

Truck$ 9 million

1/3 of the output

1/3 of the output

1/3 of the output

Purchase/ unsold

Local firms government unsold

G=1/3 * 9 million = $ 3 million

7.3 (b)

Canned salmon fish $ 5 million

1/2 of the output 1/2 of the output

Purchased by Local households Foreigners

Truck$ 9 million

1/3 of the output

1/3 of the output

1/3 of the output

Purchase/ unsold

Local firms government unsold

NX= exports – imports= ½ * 5 million – 6 million = $ -3.5 million

7.3 (b)

• GDP= C + I + G + NX

= 2.5 million + 6 million + 3 million – 3.5 million

= $ 8 million

7.3 (c)

• The factory which produces engine earns a profit of $ 0.6 million in 2005 and half of the factory is owned by the citizens of country X.

• Calculate GNP of country X

7.3 (c)

• GNP measures the value of output produced by the nationals.

• GNP = GDP

+ factor income derived by nationals from overseas

- factor income paid to foreigners

7.3 (c)

Stage ofproduction

Output produced Outputproduced by

Market value of output

Required intermediateinput

Market value of intermediate input

First Fresh salmon fish

Local fishermen

$ 3 million

None Zero

Final Canned salmon fish

Localfactory

$ 5 million

Freshsalmon fish

$ 3 million

Stage ofproduction

Output produced

Output produced by

Market value of output

Required intermediateinput

Marketvalue of intermediate input

First Engine Factory located in foreign country

$ 6 million

None Zero

Final Truck Local factory $ 9 million

Engine $ 6 million

earns a profit of $ 0.6 million in 2005 ;half of the factory is owned by the citizens of country X

7.3 (c)

• factor income paid to foreigners = 0factor income derived by overseas nationals

= 1/2 * 0.6 million = $ 0.3 million

• GNP = GDP + income paid to foreigners- income derived by overseas nationals

= 8 million + 0.3 million - 0= $ 8.3 million

7.3 (d)• Explain how each of the activities should be

treated under the national income accounting of country X by income approach:

I. Fisherman A wins $2,000 from playing cards with fisherman B.

∵ not a process of production (no output)

∴ not counted as income

Value of total incomes generated in the process of production

7.3 (d)• Explain how each of the activities should be

treated under the national income accounting of country X by income approach:

II. Fisherman C catches $ 3,000 of salmon fish and keeps them for his own use.

∵ non-market activity

∴ not counted as income

Value of total incomes generated in the process of production

7.3 (d)• Explain how each of the activities should be

treated under the national income accounting of country X by income approach:

III. The government pays $ 5,000 welfare payment to an unemployed factory worker.

∵ not incomes generate from production

∴ not counted as income

Value of total incomes generated in the process of production

8.1--DenotationActual output : Y Planned aggregate expenditure: PAEDisposable income: Yd

Net tax (tax minus transfer payments): TAutonomous consumption: a=$200 billionMarginal propensity to consume (MPC): b=0.8Autonomous investment : IP =$20 billionAutonomous government spending: G=$100 billionLump sum tax: T0=$50 billionProportional tax rate: t=0.1Autonomous exports: X=$100 billionMarginal propensity to import (MPM) m=0.12

8.1 a) What is the output gap?Equilibrium level PAE=YPAE= C + IP + G + (X-M)

= (a + bYd ) + IP + G + (X – mY)= [a + b ( Y – T)] + IP + G + (X – mY)= [a + b ( Y – T0 –tY)] + IP + G + (X – mY)= (a-bT0 + IP +G +X) + (b- bt-m)Y

(a-bT0 + IP +G +X) : denoted as A

A + (b- bt-m)Y =Y(a-bT0 + IP +G +X) 200-0.8x50+20+100+1001- b(1-t ) + m = 1-0.8(1 -0.1)+0.12

= $950 (billion)

Output gap=actual output – full employment output= $950-$1000 = $-50 (billion)

C =a +b Yd

M=mY Yd= Y- TT = T0+ t Y

Y =

8.1 b) & c)b) Budget deficit or Budget surplus？

Tax income of government=Lump sum tax +induced tax T= T0 + tY = $50 + 0.1x $950 = $145 (billion)G= $100 (billion)Budget Surplus = $145- $100 = $45 (billion)

c) Value of net exports?Net export = X – M

= X – mY=$100 – 0.12x $950=$-14 (billion)

8.1 d)A ΔA

1-b(1-t)+m 1-b(1-t)+m

investment A Y

ΔY = -Output gap =$50(billion), 1-b(1-t) + m =0.4

ΔA= $50x 0.4= $20 (billion) i.e. Δ IP = 20 (billion)

Interest rate: r

$ 10 billion

1%

Δr = 20 ÷10 x 1% = 2%

Interest rate should decrease by 2%

Y= ΔY=

Δ IP Δr

8.1 e)ΔA

1-b(1-t)+m

m , others , 1-b(1-t) + m

ΔY 1

ΔA 1-b(1-t)+m

multiplier effect will be smaller

ΔY=