ECON 212

CHAPTER 21 MEASURING NATIONAL OUTPUT AND

NATIONAL INPUT
GDP Gross Domestic Product (Total Market Value of all final goods and services
produced within a given period by factors of production (LAND, LABOUR,
CAPITAL) LOCATED WITHIN A COUNTRY)
Final Goods and services (Intermediate goods) are produced by one firm, for
use in further processing another on. NOT COUNTED IN GDP
Value added Difference between Value of goods as they leave, and the cost of
goods as they entered that stage.
GDP only concerned with NEW, CURRENT production. Old output isnt counted in
current GDP
Not counts TRANSCATIONS in which money and goods changes HANDS, in
which new goods and services are produced.
GDP is the value of output produced by factors of production LOCATED WITHIN A
COUNTRY.
Output produced by U.S citizen abroad DOESNT COUNT in GDP.
Output produced by foreigners working in U.S DOES COUNT in GDP.
GNP Gross National Product ( Total Market Value of all final goods and services
produced within a given period by factors of production owned by a countrys
citizens, REGARDLESS of WHERE the output is produced.
Calculating GDP
2 WAYS OF CALCULATING GDP:
1) Expenditure Approach
4 main groups of the Economy
1)
2)
3)
4)

Households
Firms
The Government
Rest of the world

4 Main Categories of Expenditure

(C) = Personal Consumption Expenditures = Household spending on Consumer
Goods.
(I) = Gross private Domestic Investments = Spending by Firms and households
on new capital (PLANT, EQUIPTMENT, INVENTORY, NEW residential Structures)
(G) = Government Consumption and gross investment
Net exports = (Exports (EX)-(IM)Imports)

GDP = C+I+G+ (EX-IM)

(C) = Three types of expenditures 1) Durable goods, 2) Nondurable Goods 3)
Services.
(I) Investments mean ( purchase of new capital) as well as ( Stocks, Bonds, or
mutual funds)
TOTAL INVESTMENT BY PRIVATE SECTOR is GROSS PRIVATE DOMESTIC
INVESTMENT
Non residential investment Expenditure by firms (machines, tools, plants)
Residential investment - expenditure by firms (new houses, apartments)
Change in Business inventories, - amount inventories change during a period.
Inventories - Goods produced for later sale.

GDP = Final Sales + Change in Business

Inventories.
Gross investment = Total Value of all newly produced capital goods (PLANT,
EQUIPTMENT, HOUSING AND INVENTORY) during a given period.

Net investment =

GROSS INVESTMENT - DEPRECIATION (Amount assets

value falls in a given period)

Government consumption and gross investment

expenditure by federal,
state and local governments for final goods and services.
=

Income approach
- Who receive it rather than as who purchases it.
National income is sum of 8 income items :
1) Compensations of employees - Wages and salaries paied to households
by firms, government.
2) Proprietors income - - Income of trade owners
3) Rental income - Received by property owners in rent.
4) Coperate profits income of coperations
5) Net interest - Interest paid by business.
6) Indirect taxes minus subsidies - Taxes including Sale taxes, customs
duties, license fees.
7) Net business transfer payments net payments by businesses to others
and are thus income of others.
8) Surplus of Government Enterprises Income of government enterprises
GDP

+ receipts of factors income FROM the rest of the world

-

Payments of factor income TO the rest of the world.

== GNP

- Depreciation = = NNP ( net national profit)

NNP Statistical discrepancy ( Data measurement error = =NATIONAL INCOME

Personal income = income of households.income received before they pay

personal income taxes,
After tax income. = have to spend on how they please.

NOMINAL GDP:
All components of GDP valued at their current prices.
Weight = Importance attached to an item within a group of items.

Calculate Real GDP You set a BASE YEAR - A YEAR TO COMPARE WITH

GDP deflator - One measure of the overall price Level.

GDP Deflator:

The GDP deflator is a measure of price inflation. It is calculated by

dividing nominal GDP byreal GDP and then multiplying by 100.