Download Measuring a Nation`s Income

The Data of Macroeconomics
Measuring a Nation’s Income
Micro and Macroeconomics

Macroeconomics is the study of the economy as a
whole. Its goal is to explain the economic changes
that affect many households, firms, and markets at
once.
 Microeconomics is the study of how individual
households and firms make decisions and how they
interact with one another in markets.
 Macroeconomics concerns the workings of the entire
economy.
 Microeconomics and macroeconomics are closely
linked.
The Circular-Flow Diagram
Product Market
$
$
Households
Businesses
$
$
Market for Factors
of Production
Measuring the nation’s income


Gross Domestic Product is the total market value
of all final goods and services produced during a
given period of time within a country, region, or
province.
Gross National Product is the total market value of
all final goods and services produced during a
given period of time by the nation’s residents,
regardless of the place produced.
Measuring the nation’s income

1.
2.
3.
4.
Important Features of GDP
Output is valued at market-determined prices.
Output is measured in dollar terms.
GDP records only the output of final goods.
Represents the amount of money one would need
to purchase a year’s worth of the economy’s
production of all final goods.
5. GDP includes all items produced in the economy
and sold legally in markets.
6. GDP does not include items produced and
consumed at home that never enter the
marketplace.
Measuring the Income of an
Economy
• GDP can be measured using any of the
three approaches:
– Expenditure Method
– Income Method
– Value added Method
• Total production=Total expenditure= Total
income is an identity
Expenditure Method
• GDP for a given year is calculated by
adding up the expenditures needed to
purchase the final output of goods and
services (final demand) produced in that
year
– Consumption exp
– Investment exp
– Govt purchases of goods and services
– Net exports
Income Method
• GDP for a given year is calculated by adding up
the factor incomes and other claims generated
by the act of production
• All of the value produced is owned by someone.
Therefore value of production= value of income
claims generated by that production
– Factor payments (Wages, rent, interest, and
profits)
– Nonfactor payments
• Indirect taxes net of subsidies
• Depreciation
Value Added Method
• GDP for a given year is calculated by
summing all values added in the economy.
• Value added is a measure of each firm’s
contribution to total output, ie., the amount
of market value produced (added) by that
firm.
• VA by a firm= Value of the firm’s outputValue of inputs purchased from other firms
• It avoids the statistical problem of double
counting.
Measuring the nation’s income
GDP (Y) is the sum of:

Consumption (C)
 Investment (I)
 Government Purchases (G)
 Net Exports (NX)
 Y = C + I + G + NX

GDP Per Person tells us the income and
expenditure of the average person in the
economy.
Real versus Nominal GDP
 Nominal GDP is the market value of the
economy’s current production
 Real GDP measures any given year’s total
output in “constant” prices.
 An accurate view of the economy requires
adjusting nominal to real GDP, using the
GDP Price Deflator.
GDP Components of Measurement
Government
Purchases
Net Exports
5%
21%
Investment
Consumption
17%
57%
Measuring the nation’s income

Three Other Measures of Income
1. Net National Product (NNP): Total income of
residents of a nation after subtracting capital
consumption allowances.
2. Personal Income: The income that households
and non-corporate businesses receive.
3. Disposable Personal Income: The income that
households and non-corporate businesses have
left after taxes.
Economic Indicators for Canada
General indicators
Change from
previous
period
Most recent period
Change from
previous
year
percent
Gross domestic product at market prices (SAAR,
$ billion)
3rd quarter 2003
1,216.30
1.1
4.4
Real Gross domestic product at market prices
(SAAR, $ billion chained, 1997)
3rd quarter 2003
1,090.40
0.3
1
Business investment: Machinery and equipment
(SAAR $ billion chained, 1997)
3rd quarter 2003
88.9
4.4
5.4
Personal expenditure on consumer goods and
services (SAAR, $ billion chained, 1997)
3rd quarter 2003
628.1
1.2
4.3
Personal disposable income (SAAR, $ billion)
3rd quarter 2003
722.5
0.8
3.1
Gross domestic product at basic prices (SAAR, $
billion, 1997)
Oct-03
1,020.70
0.2
1.8
Composite index (SA, 1992=100)
Nov-03
186.9
0.8
4.2
41.6
3.7
11.3
Operating profits of enterprises (SA, $billion)
3rd quarter 2003
percentage points
Personal savings rate (SAAR, percent)
3rd quarter 2003
1.3
-0.9
-2.5
Source: Statistics Canada, CANSIM, tables 187-0002, 377-0003, 379-0006, 379-0019, 379-0022, 380-0001, 380-0002 and 3800004.
SAAR= Seasonally Adjusted Annual Rate
GDP and Economic Well-Being
It is a good measure of the material well-being of
the economy as a whole as it is a good measure
of the economic activity and economic
opportunities.
2. There is an association between higher income
and better standards of living.
3. GDP does not measure quality of life such as
leisure, quality environment, and the value of
activity that takes place outside of the markets
4. International comparisons of a countries’ living
standards using GDP should be treated cautiously
(unreported and non-marketed activities in poor
countries is high)
1.
Growth in Canada's Real GDP