Академический Документы
Профессиональный Документы
Культура Документы
Measuring GDP
3
Imports (M)
Exports (X)
GDP=C+I+G+(X-M)
Aggregate Expenditures
Lending for
Investments (I)
Govt borrowing Govt Expenditures (G)
Savings
Financial Sector
Firms Government
7. MEASURING GDP
Households
Transfers
Disposable Income = Wages-taxes+transfers
Taxes
GDP
Aggregate Income
Content
2 4
7. Measuring GDP
The Big Picture
GDP = Gross Domestic Product Every economic action has 2 sides to it: spending and receiving income. We can therefore explain the flows in the economy either via an expenditure or an income approach.
Expenditure Approach: Computing the GDP by adding up all spending on all final goods and services produced in one country in one year. Income Approach: Computing the GDP by adding up all earnings from resources used to produce output (e.g. labor wage, ) in one country in one year.
7. Measuring GDP
The Big Picture: The Flows of the Economy The Expenditure Approach The Income Approach Limitations of National Income Accounting Accounting for Price Changes
The CPI Nominal and Chained dollars GDP GNI
7. Measuring GDP
5 7
7. Measuring GDP
The Expenditure Approach
GDP: Y = C + I + G + (X-M) Government Expenditures (G) (~10-20% of GDP)
Govt consumption (wages, coffee, paper, ) and govt investment (public goods, e.g. schools, infrastructure,)
Note:
GDP does not include transfer payments from the govt (unemployment insurance, social security,) since they are no spending on any final good or service.
7. Measuring GDP
6 8
7. Measuring GDP
The Income Approach
GDP is computed by aggregating the incomes earned by input suppliers in production
Example: a Hersheys chocolate bar creates
incomes for the workers (labor); suppliers of milk, sugar, electricity,(resources), profits to the owner (capital, entrepreneurship, technology)
The price of the Hershey chocolate bar equals the sum of those incomes.
7. Measuring GDP
9 11
7. Measuring GDP
Limitations of National Accounting
(1) GDP values sold (new) products and services
(1.1) Do-it-yourself work, household work, child care, etc. are not included.
Societies more self-sufficient households have lower GDPs.
(1.2) Off-the-book production is missing in the GDP. Informal economies as a percentage of the economy are much much larger in developing economies. (1.3) Pure financial and barter exchanges not included (1.4) Sale of used goods not included (1.5) Govt and private transfer payments not included.
Social Security, unemployment benefits, Subsidies,
7. Measuring GDP
10
7. Measuring GDP
(2) GDP as a proxy of societies utility
If one thinks of GDP (=income/output) as a proxy for the utility created by society, then it misses out on leisure time (b/c its not sold in the market) and the quality of products, both which create utility.
e.g. a computer for $1000 today can do much more than a computer for $1,000 five years ago.
Imports (M)
Exports (X)
C+I+G+(X-M)
Lending for
Investments (I)
Govt borrowing Govt Expenditures (G)
Savings
Financial Sector
Households
Based on chart in our textbook, p.146
7. Measuring GDP
13 15
7. Measuring GDP
Accounting for Price Changes
GDP measured in current dollars is called Nominal GDP.
The issue: $1 in 1960 bought much more than $1 in 2008; market prices in 1960 not comparable to 2008. Example:
1979-1980: GDP increase of 9%, but inflation of 9%, too. So no real GDP increase!! GDP becomes inflated from inflation. We need to take out the hot air/deflate GDP back to its real value.
7. Measuring GDP
14 16
7. Measuring GDP
Calculation of Real GDP
Formula:
Real GDP = (Nominal GDP/Price index) x 100
Example:
Base year = 2000 (thus price index in 2000 was 100) Nominal GDP for 2008 = $13,840 billion Price index for 2008 = 124
7. Measuring GDP
17 19
7. Measuring GDP
Any Questions?
7. Measuring GDP
18
Calculation of CPI
Example: Say our base year is 2000 and the basket costs in 2000 $600.
Current year 2000 2001 2008 Basket price in current year $600 $650 $760 Basket price in base year $600 $600 $600 Price Index 100 108 126