ema atw108_ch25
TRANSCRIPT
Chapter 25
Measuring Domestic Output and National
Income
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Assessing the Economy’s Performance
• National Income Accounting measures economy’s overall performance
• *Bureau of Economic Analysis compiles National Income and Product Accounts• Assess health of economy• Track long run course• Formulate policy• Who use these infos? *BNM, MOF - Malaysia
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Gross Domestic Product
• Measure of aggregate output• Monetary measure (in terms of RM, $)• All goods & svcs produced must be converted to RM• To avoid multiple counting• Only use market value final goods• Ignore intermediate goods (WIP)• Count value added (the market value of a firm’s output
less the value of the inputs that the firm purchased from others.)
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Gross Domestic Product
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(1)Stage of Production
(2)Sales Value
Of MaterialsOr Product
$ 0
Firm A, sheep ranch 120
Firm B, wool producer 180
Firm C, coat manufacturer 220
Firm D, clothing manufacturer 270
Firm E, retail clothier 350
Total Sales Value $1140
Value Added (total income)
(3)ValueAdded
]--------$120 (= $120 - $ 0)
]-------- 60 (= 180 - 120)
]-------- 40 (= 220 - 180)
]-------- 50 (= 270- 220)
]-------- 80 (= 350 – 270)
$350
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Gross Domestic Product
• Exclude financial transactions b’coz they have nothing to do with productions of final goods.
• 2 types of financial transxctn:a) purely financial trnsxcn – public trsfr KWSP,
SOCSO, PTPTN, BR1M.b) 2nd hand sales - sell PM used car to u.
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How Do U know this person is rich?
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How do u know the economic health of Penang?
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Two Approaches to GDP
• Income approach• Count income derived from production• Wages, rental income, interest income,
profit• Expenditure approach• Count sum of money spent buying the final
goods• Who buys the goods?
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Two Approaches to GDP
GDP
= =
+Consumption by
Households
Investment byBusinesses
GovernmentPurchases
ExpendituresBy Foreigners
++
+++
Wages
Rents
Interest
Profits
StatisticalAdjustments
+
Expenditures or Output Approach
Income or Allocations Approach
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Goods that normally have 3 or more life of expectancy
food, clothing,
and petrol
Bank, Insurance,
travel
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Expenditures Approach
• Gross private domestic investment (Ig)(pelaburan dalam negara)
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Expenditures Approach
• Gross private domestic investment (Ig)(pelaburan dalam negara
• Creation of new capital assets
• Noninvestment transactions excluded
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How does today’s investment expand ?
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Expenditures Approach
January 1 Year’s GDP December 31
Consumption,government
expenditures, and net exports
Depreciation
NetInvestment
GrossInvestment
Stock ofCapital
Stock
ofCapital
Gross InvestmentDepreciationNet Investment
-=
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Expenditures Approach• Government purchases (G)• Expenditures for goods and services (govt spends for
military assets)
• Expenditures for publicly owned capital (govt spends for school, road, hospital)
• Excludes transfer payments• Net exports (Xn)• Add exported goods• Subtract imported goods• Xn= exports (X) – imports (M)
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GDP = C + Ig + G + Xn
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Accounting Statement for the U.S. Economy, 2012 (in
Billions)
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Comparative GDP
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The Income Approach• This approach allocates expenditures as income to those
responsible for producing the output• Compensation of employees• Rents• Interest• Proprietor’s income• Corporate profits
• Corporate income taxes• Dividends• Undistributed corporate profits
• Taxes on production and imports
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The Income Approach• From national income to GDP• Subtract net foreign factor income (income Malaysians gains from
supplying resources abroad – income that Indonesians gain from supplying resources to Malaysia)
• Statistical discrepancy• Consumption of fixed capital
• Other national accounts• Net domestic product (NDP)• National income (NI)• Personal income (PI)• Disposable income (DI)
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U.S. Income Relationships 2012
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Circular Flow Revisited
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Nominal GDP vs. Real GDP
• GDP is a dollar measure of production• We don’t use GDP to measure because currency always
change.• Using dollar values creates problems• Nominal GDP• Based on prices when output was produced
• Real GDP• Reflect changes in the price level• Use base year price
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GDP Price Index
• Use price index to determine real GDP
PriceIndexIn GivenYear
= x 100Price of Market Basket
In Specific YearPrice of Same Basket
In Base Year
RealGDP =
Nominal GDP
Price Index (in hundredths)
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GDP Price Index
Year
(1)Units of Output
(2)Price of
PizzaPer Unit
(3)Price Index
(Year 1 = 100)
(4) Unadjusted, or Nominal,
GDP(1) X (2)
(5)Adjusted,
or Real, GDP
1 5 $10 100 $ 50 $50
2 7 20 200 140 703 8 25 250 200 80
4 10 30 --- --- ---
5 11 28 --- --- ---
• Calculating Real GDP (Base Year = Year 1)
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Is GDP a perfect measure to measure an econ’s health?
(para: is wealth a perfect measure a person?)
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Shortcomings of GDP
• Nonmarket activities• Leisure• Improved product quality• The underground economy• GDP and the environment• Composition and distribution of the output• Noneconomic sources of well-being
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Underground Economy
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Sources of BEA Data
• Consumption• Census Bureau’s Retail Trade Survey• Census Bureau’s Survey of Manufacturers• Census Bureau’s Service Survey• Industry Trade Sources
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Sources of BEA Data
• Investment• All consumption data sources• Census Bureau’s Housing Starts Survey and
Housing Sales Survey• Retail Trade Survey• Wholesale Trade Survey• Survey of Manufacturing
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Sources of BEA Data
• Government Purchases• Office of Personnel Management• Construction Surveys• Census Bureau’s Survey of Government
Finance• Net Exports• U.S. Customs Service• BEA Surveys and Analysis