Download GDP in current dollars

Unit IV: Macroeconomics
Policies
pp. 338-456
1
Chapter 13 Economic Performance
• Gross Domestic Product
• aka: GDP
• The dollar amount of all final goods and
services produced in a single year
• Within a nation’s borders.
• A major indicator for economists and
governments of how their economies are
doing.
2
National income accounting
• a system of statistics and accounts that keeps track
of
• Production
• Saving
• Consumption
• Investment
• US: the National Income and Products Accounts
(NIPA) are kept by the US Bureau of Economic
Analysis (BEA)
• Part of the US Department of Commerce
3
Intermediate products
• products used to make other products already
counted in GDP
• Not counted in GDP
– Tires purchased with a new car
• Only value of car is counted
– Flour used by a bakery to make bread
• Only value of bread is counted
4
Secondhand sales
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merchandising used goods
Not counted in GDP
Personal sales at home/yard sales
Flea markets
Used car
Any sale of a house after initial purchase
Used clothes
Thrift shops
Etc.
5
Nonmarket transactions
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do not happen in a market.
Not counted in GDP
Neighbor baby sitter
Lawn mowing
homemaking
6
Underground economy
• aka: “black market”
• Not reported in GDP
– Selling stolen goods
– Smuggling
– Illegal gambling
– Prostitution
– Illegal drugs
– counterfeiting
7
Gross National Product
• the dollar amount of all final goods and
services and structures produced in one year
• Labor and property supplied by the country’s
residents.
– Includes GDP
– Also includes imports
• Another important measure of economic
productivity.
8
Net National Product
• GNP minus depreciation
• subtracts capital equipment that is over 1 year
old
• Another economic measure
9
National income
• income that is left after all taxes are
subtracted from NNP
– Excise tax
– Property tax
– Licensing fees
– Customs duties
– General sales tax
• Except corporate profit tax
• Another economic measure
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Personal income
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Another economic measure.
total amount of income going to consumers
Before individual income taxes are subtracted.
Adjustments include:
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Income that does not go to the consumer
Corporate income taxes
SSI (FICA) contributions
Transfer payments are added in—
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Unemployment insurance
SSI
Medicaid
Other public assistance
11
Disposable personal income
• aka “DI”
• Total income the consumer sector has at its
disposal AFTER income taxes
• “amount people have available to spend”
12
Household
• all the persons who occupy (reside) in a living
quarters:
• House
• Apartment
• Etc.
– Head
– Family
– Lodgers
– Live-in employees
13
Unrelated individual
• a person who lives alone even though he/she
may have family living elsewhere.
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Family
• a group of two or more persons living
together
• related by
– blood,
– marriage,
– adoption
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C
• formula symbol for the consumer sector of the
economy
• Income of
– Households
– Family
– Unrelated individuals
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Output-expenditure model
• Shows the aggregate demand by the
– Consumer sector
– Investment/business sector
– Government sector
– Foreign sector
• The formula:
GDP = C + I + G + (X-M)
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Net export of goods and services
• refers to the difference between the US’
exports and imports.
• Note: This also helps determine balance of
trade
18
Section 2 :
• Inflation
• a rise in the general price level
• Note: a weakening of the buying power of a
currency.
• Inflation must be considered when measuring
the economy because it distorts the results
(does not give an accurate measure)
19
Price index
• statistical series that can be used to measure
changes in prices over time.
• Helps exclude inflation
20
Base year
• the year that all other years will be compared
to
• Price index will use a base year to measure
progress or decline in later years.
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Market basket
• representative selection of commonly purchased goods and services
• Note:
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Automobile
Tires
Shoes
Haircuts
Legal advice
Movie tickets
Meat
Milk
Bread
Carrots
Lettuce
Etc.
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Consumer Price Index
• reports on price changes for about 80,000
items in 364 categories
• 85 geographically distributed areas of the US
• Compared to base year of 1982-84
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Producer Price Index
• price changes paid by domestic
businesses/industries for their inputs.
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Implicit GDP price deflator
• An index of average levels of prices for all
goods and services in the economy
– Computed quarterly
– Base year of 1996
– Covers thousands of items
• Good long-run indicator
25
Current GDP
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this year’s GDP
Real GDP (GDP in constant dollars)
Current GDP minus inflation
Formula:
Real GDP = GDP in current dollars
Implicit GDP price deflator x 100
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Assessments: Section 1, Checking for
Understanding
• 1
• GDP
– the dollar amount of all final goods and services produced
within a country’s national borders
– In a year
• GNP
– is the dollar value of all final goods, services, and
structures produced within national boundaries, produced
with labor and property supplied by a country’s residents.
– In a year
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Assessments: Section 2, Checking for
Understanding
• 1
• No, if adjustments are made for population
growth, the rates would be the same.
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• 3
• Representative of purchases
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4
Consumer price index
Producer price index
Implicit GDP price deflator
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• 5
• Current GDP is the GDP not adjusted for
inflation
• When the distortions of inflation are removed,
it is called “real GDP”
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6 Image, p. 342
• Question
• Quantity multiplied by price per unit
32
6 Image, p. 343
• Question
• Illegal activities
– Gambling
– Smuggling
– Prostitution
• Some legal activities not reported to avoid
taxes.
33
6 Image, p. 345
• Question
• GDP does not count
– Payments US citizens receive from outside the
country
• GDP does count
– Payments made to a foreign-owned resource
employed in the US
34
I
• 346 formula symbol for the
investment/business sector of the economy
– Proprietorships
– Partnerships
– Corporations
• They are the producers
35
G
• 347 formula symbol for government sector of
the economy
– All levels
• Federal
• State
• Local
• Collected tax revenues are counted as its
income
36
X-M
• 348 formula symbol for the foreign sector of
the economy
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6 Image, p. 347
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•
•
Question
Personal consumption expenditures
Government purchases of goods and services
Investment expenditures
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12 Image, p. 351
• Question
• 351 inflation has changed the price per unit of
each item
39
12 Image, p. 352
• Question
• Subtract the price of the market basket for the
base year from the price of the new market
basket.
• Divide the difference by the market basket
price for the base period
• The percentage is the change of the new
market basket in relation to the base-period
market basket.
40
12 Image, p. 353
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Questions
1
From 1975 to 1976
2
The 1990s
– Because from 1995 and on, growth consistently
increased
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12 Image, p. 354
• Question
• Convert current dollar amounts to real dollars
by
• Dividing the current dollar amount by the
implicit GDP price deflator for that period
• Multiply that number by 100
42