Download Measuring GDP - NZSNA

Measuring GDP - NZSNA
Gross Domestic Product (GDP)

GDP= the money value of final goods and
services produced in an economy in a year.
Three ways to measure GDP
•
•
•
Production
Income
Expenditure
GDP

An economies standard of living is measured by
the number of goods and services that it has
available to use and enjoy.

An economies growth can be measured by the
increase in the number of goods and services it
makes

Why do you think investment and savings are so
important in an economies growth?
Measuring GDP

The Expenditure Approach- by adding up selling prices
of all goods and services bought in the economy then
making allowances for goods and services bought
overseas.

Formula= C + I + ∆R + G + (X-M)

Consumption excludes buying new houses- this is
investment
Investment includes govt investment (Roading)

•
•
Change in inventories are included as these represent goods
available for sale and represent an increase in investment
spending
A decrease in stocks will reduce GDP because they represent
expenditure on goods that were produced in the previous year.
Measuring GDP
• The income approach- by adding up incomes
generated in the production process.
• Income includes
– wages, salaries (Compensation to employees)
– profits, dividends, rents, interest (Gross operating surplus)
• Then make final adjustments to account for govt intervention. (Add taxes
on production e.g. GST and imports e.g. tariffs then takeaway subsidies)
• Y= C+ S + T
Measuring GDP
• The production approach- measures the value added by
producers, by deducting the value of goods and services used
up in the production from the total value of goods and
services produced.
• To calculate find the value that each sector/producer adds to
the value of the product during the production process.
• A problem that can occur with this approach is that of double
counting.
• We will focus on the other two approaches
Find GDP for the following
data using the income and expenditure
approaches
Values of output at each stage of Bread production
Grower
Miller
Baker
30
45
75
Intermedi ate goods
Sales
30
price
30
75
75
150
Wages
Wheat Grower Miller
Baker
Wages
30
45
75
Intermediate
goods
-
30
75
Sales price
30
75
150
• The expenditure approach= value of the final
product = $150 million
•The incomes approach totals wages at each
stage of production= 30+45+75=$150million
NSNA
• The New Zealand System of National Accounts (NZSNA)
provides an international standard of measure of GDP
that enables international comparisons
• Sometimes there will be a statistical discrepancy in the
NSNA this is
Statistical discrepancy = Income Approach GDP –
Expenditure Approach GDP
Basically it is used to make Income and Expenditure
approaches balance
NZSNA Terminology
Consumption
Final private expenditure
Gross fixed capital formation
Investment
Government Spending
Net Exports
Government final expenditure
Exports of goods and services –
Imports of goods and services.
Table 6.2
NZSNA Terminology
Wages and salaries
Gross Profits
Depreciation
Net Indirect Taxes
Compensation of Employees
Operating Surplus
Consumption of fixed capital
Indirect taxes minus
subsidies.
Table 6.2
Important things to remember when
calculating GDP
• Include only G&S produced in NZ economy
• Include G&S produced only within that time period.
(inventories included in time period they were made
not when they were sold)
• Avoid double counting (second hand goods not
counted)
Questions
•
•
•
•
•
What is GDP?
What is the formula for calculating expenditure on GDP?
Draw the simple circular flow diagram
With reference to the model explain three ways GDP can be measured
Calculate GDP from the data below using the Income and Expenditure
methods
Item
$m
Item
$m
Exports of G$S
Indirect taxes
Compensation
employees
4000
10000
1000
4000
Gross fixed capital
formation
2500
Subsidies
800
Private spending
12000
Increase in stocks
200
Gross Operating
surplus
7500
Government
spending
3000
Imports of G&S