measuring the economy’s performance chapter 13. national income accounting measurement of the...
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Measuring the Economy’s PerformanceChapter 13
National Income Accounting • Measurement of the national economy’s performance, dealing
with the overall economy’s output and income
• Five major statistics
Gross Domestic Product (GDP)• Total dollar value of all FINAL goods and services produced in
the nation in a single year
• List some goods and services
• List the top ten countries
Avoid double accounting • Do not count things twice!
Computing GDP• Consumer sector (c)
• Investment sector (I)
• Government sector (G)
• NET EXPORTS (X)
Net Exports• Difference between what the nation sells to other countries
and what it buys from other countries
• This can be negative, and in the USA, it has been recently
• Section 1 Chapter 13 figure & Video
Net domestic product (NDP)• Another way to measure an economy
• The value of the nation’s total output (GDP) minus the total value lost through depreciation on equipment
• Depreciation – loss of value because of wear and tear to durable goods and capital goods
• NDP = Consumption + Government Expenditures + Investment+Exports - Imports - Depreciation
National Income• Total income earned by everyone in the economy
• List the five different sources of NI
Personal Income• Total income that individuals receive before personal taxes are
paid
• Transfer Payments- welfare and other supplementary payments that a state of the federal government makes to individuals - BLS stats
• Transfer payments are added to NI and PI
Disposable personal income (DPI)• Income remaining for people to spend or save after all taxes
have been paid
• Important factor in economy’s well being
Correcting Statistics for Inflation• I will read to you Issues In The News on page 341
• Prolonged rise in the general price level of final goods and services = =
• Purchasing power – the real goods and services that money can buy; determines the value of money
• During inflation, people spend more than they are making, have to take out loans they cannot pay back, and cannot save or invest
• Inflation Video
The opposite of inflation• Deflation – prolonged decline in the general price level of
goods and services
• Why is this such a bad thing? Think about the psychology about falling prices.
• Examples: Housing, cars, debtors • Rich people like it, debtors hate it• Stagflation (Prices up, production down)• Hyper inflation (money supply)
Measures of inflation• Consumer Price Index (CPI) – a statistical measure of the
average of prices of a specific set of goods and services purchased by typical consumers in city areas
• Market basket – representative group of goods and services used to compile the consumer price index
• Market basket is used to measure the CPI
Market Basket• The BLS compiles the CPI monthly
• They start with the base year – year used as a point of comparison for other years in a series of statistics
• (Current year price) - (Base year price) = Inflation
• Usually the base years are from 1982-1984 which the market basket was 100.
Producer Price Index (PPI)• Measure of change in the price over time that US producers
charge for their goods and services
• Real GDP – GDP that is adjusted for inflation to compare years
Business Fluctuations• Business Cycle – Irregular changes in the level of total output
measured by real GDP
Largest fluctuation ever?• October 29, 1929 – Black Tuesday• Call-in loans
Why do business fluctuations? • Innovations
• Gov. Policies
• Wars
• Trade
• Psychology
Indicators that show fluctuations
• Leading – Statistics that point to what will happen in the economy
• Coincident – Economic indicators that usually change at the same time as changes in overall business activity
• Lagging – Indicators that seem to lag behind changes in overall business activity - tell duration of the phases in the cycle
• Book page 358