welcome to the session
DESCRIPTION
Welcome to the Session. National Income Accounting. National Income Accounting. National Income Accounting Defined Circular Flow of Economic Activity Measures of Output GDP/GNP/NDP/NNP/NI/DI/DPI Nominal GDP vs Real GDP GDP Per Capita Inflation and Price Index - PowerPoint PPT PresentationTRANSCRIPT
![Page 1: Welcome to the Session](https://reader038.vdocuments.site/reader038/viewer/2022110103/568148fe550346895db62565/html5/thumbnails/1.jpg)
Welcome to the Welcome to the SessionSession
National Income National Income AccountingAccounting
![Page 2: Welcome to the Session](https://reader038.vdocuments.site/reader038/viewer/2022110103/568148fe550346895db62565/html5/thumbnails/2.jpg)
National Income Accounting
National Income Accounting Defined Circular Flow of Economic Activity Measures of Output GDP/GNP/NDP/NNP/NI/DI/DPI Nominal GDP vs Real GDP GDP Per Capita Inflation and Price Index Interest Rate and Real Interest Rate Shortcomings of GDP as a Measure of Economic Well-Being
![Page 3: Welcome to the Session](https://reader038.vdocuments.site/reader038/viewer/2022110103/568148fe550346895db62565/html5/thumbnails/3.jpg)
Measures of Output (Production)
National Income Accounting refers to the measurement of aggregate economic activity, particularly national income and its components.
Aggregate = Total or Gross
![Page 4: Welcome to the Session](https://reader038.vdocuments.site/reader038/viewer/2022110103/568148fe550346895db62565/html5/thumbnails/4.jpg)
MARKETS FOR FACTORS OF PRODUCTION
MARKETS FOR GOODS AND SERVICES
FIRMS HOUSEHOLDS
Good and services bought
Good and services sold
Revenue (=GDP)
Spending (=GDP)
Inputs for Production
Land, labor and capital
Wages, rent, interest and profit (=GDP)
Flow of goods & services
Flow of money: Taka
Income (=GDP)
THE CIRCULAR FLOW DIAGRAM
![Page 5: Welcome to the Session](https://reader038.vdocuments.site/reader038/viewer/2022110103/568148fe550346895db62565/html5/thumbnails/5.jpg)
Measures of Output (Production)
Gross Domestic Product is the total monetary value of final output produced within a nations borders in a given time period at current market prices
Gross Domestic Product is also referred to as
• Nominal Gross Domestic Product• Current Gross Domestic Product
![Page 6: Welcome to the Session](https://reader038.vdocuments.site/reader038/viewer/2022110103/568148fe550346895db62565/html5/thumbnails/6.jpg)
Definition of GDP
The market value of good i (Vi) is equal to PiQi
GDP = sum of the market values of all final goods and services produced within the year.
n n
i i ii 1 i 1
GDP V P Q
![Page 7: Welcome to the Session](https://reader038.vdocuments.site/reader038/viewer/2022110103/568148fe550346895db62565/html5/thumbnails/7.jpg)
Measuring Gross Domestic Product
The Expenditures Approach• C + I + G + (Xn) = GDP
The Flow of Income Approach• Households supply business with the factors of
production in return for payment in the form of wages, profits, rent, and interest
The Value Added Approach• Adds the increase in value at each stage of the
production and distribution process
![Page 8: Welcome to the Session](https://reader038.vdocuments.site/reader038/viewer/2022110103/568148fe550346895db62565/html5/thumbnails/8.jpg)
GDP includes final goods and services only Final goods - goods and services that
are not purchased for the purpose of producing other goods and services or for resale Eg. Rice (final) and unhusked rice
(intermediate product)
Including intermediate goods and final goods will result in “double counting”.
![Page 9: Welcome to the Session](https://reader038.vdocuments.site/reader038/viewer/2022110103/568148fe550346895db62565/html5/thumbnails/9.jpg)
Three Approaches for measuring GDP
1. Expenditure Approach (upper loop) – measures GDP as the sum of expenditures on final goods and services.
2. Income Approach (lower loop) – measures GDP as the sum of incomes of factors of production (wages, rent, interest and profit.
3. Value-added Approach – measures GDP as the sum of value added at each stage of production (from initial to final stage)
![Page 10: Welcome to the Session](https://reader038.vdocuments.site/reader038/viewer/2022110103/568148fe550346895db62565/html5/thumbnails/10.jpg)
Expenditure Approach Uses the upper loop of the circular flow diagram. Example: Suppose the economy has only one
product, namely, rice.
Good Price per unit
Q sold Expenditure
Rice 20 1000 20,000
GDP 20,000
![Page 11: Welcome to the Session](https://reader038.vdocuments.site/reader038/viewer/2022110103/568148fe550346895db62565/html5/thumbnails/11.jpg)
Income Approach Uses the lower loop of the circular flow diagram: sum of
payments to the various factors of production. Suppose that in the production of rice the sales and
expenses are as follows:
Sales P 20,000
Expenses:
Wages 8000
Rent 4000
Interest 2000
Total 14,000
Profit 6,000
GDP=Sum of Payments to factors
20,000 P 20,000
![Page 12: Welcome to the Session](https://reader038.vdocuments.site/reader038/viewer/2022110103/568148fe550346895db62565/html5/thumbnails/12.jpg)
Value Added Approach Suppose that rice is the only final product of an economy:
It goes through several (3) stages of production.
Stage of Prod’nValue of
intermediate good
Value of Sales
Value-added
Farmer 12,000 12,000
Rice Miller -Milled Rice
12,000 15,000 3,000
Retailers - Rice 15,000 20,000 5,000
GDP= Total Value Added
20,000
![Page 13: Welcome to the Session](https://reader038.vdocuments.site/reader038/viewer/2022110103/568148fe550346895db62565/html5/thumbnails/13.jpg)
Two Things to Avoid when Compiling GDP
Multiple counting Only expenditures on final products –
what consumers, businesses, and government units buy for their own use belong in GDP
Intermediate goods are not counted Used goods are not counted
Transfer payments Transfer payments are not payments for
currently produced goods and services When they are spent for final goods and services
they will go into GDP as consumer spending
![Page 14: Welcome to the Session](https://reader038.vdocuments.site/reader038/viewer/2022110103/568148fe550346895db62565/html5/thumbnails/14.jpg)
Various Measures of Aggregate Economic Activity
GDP (Gross Domestic Product)- or + Net Factor Income
GNP- Depreciation
NNP - Indirect Business Tax National Income - RE + TP Disposable Income - Personal Tax Disposable Personal Income
![Page 15: Welcome to the Session](https://reader038.vdocuments.site/reader038/viewer/2022110103/568148fe550346895db62565/html5/thumbnails/15.jpg)
Per Capita GDP
Per Capita GDP calculations attempt to give us additional information about how we are doing as an economy.
Per Capita GDP calculations may be a better measure of the standard of living.
• For citizens living in the same country over time• For comparing standards of living between citizens of
different countries
![Page 16: Welcome to the Session](https://reader038.vdocuments.site/reader038/viewer/2022110103/568148fe550346895db62565/html5/thumbnails/16.jpg)
Per Capita Nominal GDP
Per capita GDP = --------------------------------GDP
Population
![Page 17: Welcome to the Session](https://reader038.vdocuments.site/reader038/viewer/2022110103/568148fe550346895db62565/html5/thumbnails/17.jpg)
Per Capita Real GDP
Per capita real GDP = --------------------------------Real GDP
Population
To compare per capita GDP in one year with that of another year we have to correct for inflation. In other words, we really need to revise our formula
![Page 18: Welcome to the Session](https://reader038.vdocuments.site/reader038/viewer/2022110103/568148fe550346895db62565/html5/thumbnails/18.jpg)
Nominal GDP and Real GDP
Real GDP = --------------------------------Nominal GDP
GDP Deflator
Nominal GDP measures the value of output in a given period in the prices of that period, or, as it is sometimes put, in current prices.
Real GDP measures changes in physical output in the economy between different time periods by valuing all goods produced in the two periods at the same prices, or in constant prices.
![Page 19: Welcome to the Session](https://reader038.vdocuments.site/reader038/viewer/2022110103/568148fe550346895db62565/html5/thumbnails/19.jpg)
The GDP Deflator
Real GDP = --------------------------------Nominal GDP
GDP Deflator
GDP deflator is the ratio of nominal GDP in a given year to real GDP of that year.
![Page 20: Welcome to the Session](https://reader038.vdocuments.site/reader038/viewer/2022110103/568148fe550346895db62565/html5/thumbnails/20.jpg)
Nominal Vs. Real GDP
Commodity
2007 NGDP
2008NGDP
2008RGDP
Rice 10 at 100 1000
15 at 150 2250
15 at 100 1500
Cloth 20 at 200 4000
25 at 225 5625
25 at 200 5000
5000 7875 6500
GDP Deflator= NGDP/RGDP= 7875/6500=1.21
![Page 21: Welcome to the Session](https://reader038.vdocuments.site/reader038/viewer/2022110103/568148fe550346895db62565/html5/thumbnails/21.jpg)
Inflation and Prices
Inflation rate = --------------------------------Pt - Pt-1
Pt-1
Inflation is the rate of change in prices, and the price level is the accumulation of past inflations. If Pt-1 represents the price level last year and Pt represents today’s price level, then the inflation rate over the past year can be written as
![Page 22: Welcome to the Session](https://reader038.vdocuments.site/reader038/viewer/2022110103/568148fe550346895db62565/html5/thumbnails/22.jpg)
Shortcomings of GDP as a Measure of National Economic Well-being
Problems of GDP Measurement Non Market Activities (Household
production) Imprecise Pricing of Govt. Activity Illegal production The underground economy Use of Resources to Avoid ‘Bad’ Treatment of leisure time Quality of Goods