Download Document

Chapter 15
Gross Domestic Product
• Key Concepts
• Summary
• Practice Quiz
• Internet Exercises
©2002 South-Western College Publishing
1
Who was
Simon Kuznets?
He explained the first
national accounting system
2
What is gross
domestic product?
GDP is the most widely
reported measure of a
nation’s economic
performance
3
What does GDP
measure?
The market value of all
final goods and
services produced in a
nation during a period
of time, usually a year
4
What is gross national
product (GNP)?
GNP measures the market
value of all final goods and
services produced by a
nation’s residents, no matter
where they are located
5
What is an advantage
of using GDP?
GDP measures value
using dollars, rather than
a list of the number of
goods and services
6
Does GDP measure
secondhand
transactions?
No, Current GDP does not
include the sale of a used
car or the sale of a home
constructed some years ago
7
What are
intermediate goods?
Goods and services used
as inputs for production
of final goods
8
Does GDP count
intermediate goods?
No, to avoid double
counting, GDP only
measures final goods and
services
9
What are final goods?
Finished goods and
services produced
for the ultimate user
10
Does GDP measure
nonproductive
financial transactions?
No, GDP does not count
purely private or public
financial transactions
such as giving gifts,
stocks, bonds, or
transfer payments
11
What is a
transfer payment?
A government payment to
individuals, not in
exchange for goods or
services currently produced
12
Does GDP measure the
whole economy?
Yes, GDP consists of
many puzzle pieces to fit
together, including
markets for products,
resources, consumers,
workers, and businesses
13
What is a
circular flow model?
A model that show us
how all the pieces of
the puzzle fit together
14
Product
markets
Basic
Circular
Businesses Flow Households
Model
Factor
markets
15
What is a flow?
A rate of change in a
quantity during a
given time period
16
What is a stock?
A quantity measured
at one point in time
17
What additional
sectors does a
complex circular flow
model contain?
• Financial markets
• Government
• Foreign markets
18
What leakages are
present in the more
complex model?
• Household saving
• Household taxes paid
• Income spent on imports
19
What injections are
present in the more
complex model?
• Business spending
• Government spending
• Foreign spending
20
What point is
the economy
tending toward?
Where the dollar value of
leakages equals the
dollar value of injections
21
What are the two
approaches we use to
measure GDP?
Expenditure
Income
22
What is the
expenditure approach?
The national income
accounting method that
measures GDP by adding
all the spending for final
goods and services
23
What are the four
sectors of GDP?
• Consumption
• Investment
• Government
• Foreign (X - M)
24
GDP = C + I + G + (X - M)
25
What is the
income approach?
The method that
measures GDP by
adding all incomes
26
What are the Income
components of GDP?
GDP = Compensation of
employees + rents +
profits + net interest +
nonincome adjustments
27
What are
nonincome
adjustments?
• Capital consumption
allowances
• Indirect business taxes
28
What is compensation
of employees?
Income earned from
wages, salaries, and
certain supplements
paid to labor
29
What is rental
income of persons?
Rent and royalties
received by property
owners who permit
others to use their assets
30
What are profits?
Proprietors income
Corporate profits
31
What is net interest?
Interest earned from
loans to businesses
32
What is depreciation?
An allowance for the
capital worn out
producing GDP
33
What are indirect
business taxes?
Taxes levied as a
percentage of the prices of
goods sold and therefore
become a part of the
revenue received by firms
34
What are
shortcomings of GDP?
• Nonmarket transactions
• Distribution, kind, &
quality of products
• Neglect of leisure time
• Underground economy
• Economic bads
35
What other national
accounts measure
economic performance?
• Net National Product
• National Income
• Personal Income
• Disposable Personal Income
• Nominal and Real GDP
• GDP Chain Price Index
36
What is Net
Domestic Product?
NDP is GDP minus
depreciation of the
capital worn out in
producing output
37
What is
national income?
NI is the total earned by
resource owners,
including wages, rents,
interest, and profits
38
What is
personal income?
PI is the total income
received by households
that is available for
consumption, saving,
and payment of
personal taxes
39
What is disposable
personal income?
DI is the amount of
income that households
have to spend or save
after payment of
personal taxes
40
What is nominal GDP?
The value of all final
goods based on the
prices existing during
the time period of
production
41
What is real GDP?
The value of all final
goods produced during a
given time period based
on the prices existing in a
selected base year
42
Real GDP =
nominal GDP x 100
GDP price index
43
What is the
chain price index?
A measure that compares
changes in the prices of
all final goods during a
given period to the
prices of those goods in
a base year
44
Key Concepts
45
Key Concepts
•
•
•
•
•
•
Who was Simon Kuznets?
What is Gross Domestic Product?
What does GDP measure?
What is an advantage of using GDP?
Does GDP measure the whole economy?
What are the two approaches we use to
measure GDP?
• What is the expenditure approach?
46
Key Concepts cont.
•
•
•
•
•
•
•
What are the four sectors of GDP?
What is the income approach?
What are the income components of GDP?
What are nonincome adjustments?
What are shortcomings of GDP?
What is Net Domestic Product?
What is national income?
47
Summary Key Concepts
cont.
•
•
•
•
•
What is personal income?
What is disposable personal income?
What is nominal GDP?
What is real GDP?
What is the chain price index?
48
Summary
49
GDP is the most widely used
measure of a nation’s economic
performance. GDP is the market
value of all final goods produced
in the U.S. during a period of time
regardless of who owns the
factors of production.
50
GNP is the market value of final
goods and services produced
by U.S. residents, no matter
where they are located.
51
The circular flow model is a
diagram representing the flow of
products and resources between
businesses and households in
exchange for money payments.
52
Flows must be distinguished
from stocks. Flows are
measured in units per time
period, for example, dollars per
year. Stocks are quantities that
exist at a given point in time
measured in dollars.
53
Product
markets
Basic
Circular
Businesses Flow Households
Model
Factor
markets
54
The expenditure approach sums
the four major spending
components of GDP:
consumption, investment,
government, and net exports.
55
The income approach sums the
major income components of GDP,
consisting of compensation of
employees, rents, profits net
interest and nonincome expenses
for depreciation and indirect
business taxes.
56
Net domestic product (NDP) is
GDP minus depreciation
57
National income (NI) is total
income earned by households
and is calculated as NDP minus
indirect business taxes.
58
Personal income (PI) is the total
income received by households
and is calculated as NI minus
corporate taxes and Social Security
taxes plus transfer payments, net
interest, and dividends.
59
Disposable personal income (DI)
is personal income minus
personal taxes. DI is the amount
of income a household has
available to consume or save.
60
Nominal GDP measures all final
goods and services produced in a
given time period of production.
61
Real GDP measures all final
goods and services produced in a
given time period, valued at the
prices existing in a base year.
62
The GDP chain price index is a
broad price index used to convert
nominal GDP to real GDP.
63
END
64